Start with labor
Payroll is usually the largest capitalizable cost and the most commonly wasted one. Code hours to function at the pay-run level: cultivation, harvest, trim, extraction, packaging, quality control, then retail and administration separately. Reconstructing this at year end from memory produces a number nobody can defend.
Allocate facility costs on a written basis
Rent, utilities, depreciation and maintenance attributable to production space are capitalizable. Square footage is the common allocation basis; metered utility data is stronger where available. Whatever you choose, write it down and apply it consistently.
Indirect production costs people forget
- Production supervision and management time spent in production areas
- Quality control, compliance testing and remediation tied to batches
- Equipment repairs, maintenance and depreciation on production assets
- Inbound freight and receiving labor
- Production supplies, packaging used in the production process
The documentation standard
Every costing position should have a method memo, an allocation basis with supporting data, batch-level detail, and a reconciliation to Metrc. If those four exist, an examination is a document request. If they do not, it is a negotiation.
