The Inventory and Financial category is one (1) of fifteen (15) cannabis compliance areas that the Adherence SCORE App evaluates. Inventory and financial is perhaps one of the most important considering state-mandated chain-of-custody rules, taxation and revenue requirements.
Here are the Top 5 infractions for Inventory & Financial in 2016 with the Adherence SCORE App:
- The licensee does not reconcile all on-premises and in-transit marijuana product and inventories each day at the close of business
- The state-mandated tracking system has negative / oversold / under-reported marijuana product on multiple packages or tracking units
- The licensee does not ensure that all marijuana product and inventories are tagged with state-approved tracking tags and identified as required
- The licensee is not current on related state and/or local tax payments: excise, sales or use taxes
- All scales utilized by the facility to input product weights into state-mandated tracking system are not certified in accordance with state or local statues
Inventory reconciliation is one of the most important daily activities. Often, a marijuana business (dispensary, cultivation center or infused producer) may have up to four (4) disparate systems for inventory tracking:
- Physical Inventory
- Point-of-Sale System
- State-mandated Inventory Tracking System
- Accounting System
As you can imagine, marijuana businesses are finding it extremely difficult to reconcile and manage up to four (4) disparate inventory tracking systems. In some markets, the state-mandated tracking system can also serve as the point of sale. This is not the case in Colorado and a few other states, where most businesses are forced into the 4 system model due to the state-mandated tracking system being unable to function as a viable point-of-sale system.
Top Red Flags for Tracking Marijuana Inventory
Through the use of state-mandated inventory tracking systems, state regulatory agencies are starting to monitor and investigate red flags that may indicate a business is not adequately recording revenue or tracking inventory as per state requirements. Here is a list of common red flags for inventory being reviewed by state regulators:
- 4 or more consecutive days without daily sales entries (daily reconciliation)
- 10 or more tracking units showing negative amounts:
- 10 ore more inventory tracking units are discounted within 7-day window
- Any adjustments over 14 grams made to a tracking unit
- Any adjustments over 3 grams made to 15 or more tracking units in one day
- Any tracking unit that is “active” for more than 4 months
- 50 or more plants destroyed over a 30-day period
- 10 or more plants in Vegetative state over 4 months
- 10 or more plants in Flower state over 4 months
The state-mandated inventory system in use in Colorado allows tracking packages to go negative if first in/first out accounting methods are not employed by the business. A common question in Colorado: how many negative packages are in the state-mandated tracking system?Some industry experts estimate that number to be in the hundreds of thousands. Correcting chain-of-custody issues and previous missing inventory is a primary concern for regulators and banks.
For many marijuana businesses, obtaining a bank account may be even more challenging given the business’s past inventory reconciliation practices. If a marijuana business does not have adequate inventory tracking and/or a revenue accountant, past inventory (and state tax payments) may not accurate. Banks would be wise to avoid any account holders that do not have reconciled inventory and/or a revenue/tax accountant employed since the business’s inception.
Revenue assurance, tax payments and inventory systems reconciliation will one of the most important service areas for emerging marijuana businesses to focus on in the future. Detailed standard operating procedures for inventory tracking and systems reconciliation will be imperative to succeed in this industry. Marijuana businesses must get ahead of the coming compliance curve to mitigate risks related to tracking of inventory.
