In the cannabis industry, inventory is your largest asset—and your biggest liability. With wholesale flower prices down 32% in mature markets like California and inventory waste averaging 20–30%, every untracked gram is pure profit leakage.
But here’s the brutal truth: Most dispensaries don’t track inventory waste properly. They lump expired edibles, dried-out flower, and “lost” pre-rolls into vague write-offs—triggering 280E penalties, audit red flags, and overstated COGS.
Why Cannabis Inventory Waste Is a Silent Profit Killer
Inventory waste includes:
- Expired products (edibles, topicals)
- Degraded flower (THC loss >20% after 6 months)
- Damaged goods (broken carts, moldy buds)
- Theft & shrinkage (employee sampling, miscounts)
- Disposal (returned product, lab failures)
The Cost?
- Average dispensary: $4,200/month in waste (Cannabis Business Times, 2025)
- Multi-store operator: $75K–$150K/year
- 280E impact: Non-compliant write-offs = non-deductible expenses → higher tax bills
IRS Rule: Only COGS is deductible. Waste outside COGS? You pay tax on revenue you never earned.
280E + Waste: The Hidden Tax Bomb
Under Section 280E, you cannot deduct operating expenses—but COGS is fully deductible. That means:
| Waste Type | 280E Treatment | Deductible? |
| Expired in storage | COGS (if tracked) | Yes |
| “Mystery shrinkage” | Operating loss | No |
| Disposal without logs | Non-deductible | No |
| Lab-failed batch | COGS (with proof) | Yes |
Bottom Line: Track waste like cash—or the IRS treats it like profit.
The 5 Types of Cannabis Inventory Waste You MUST Track
1. Expiration Waste
- Edibles: 6–12 month shelf life
- Tinctures: 18–24 months
- Action: Use batch-level expiration alerts in Metrc
2. Degradation Waste
- Flower: Loses 1–2% THC/month after harvest
- Action: Track humidity, light, temp in storage
3. Damage & Returns
- Broken packaging, leaky carts
- Action: Photo log + vendor credit workflow
4. Theft & Shrinkage
- Employee sampling, POS errors
- Action: Cycle counts + camera + POS audit trails
5. Regulatory Disposal
- Recalls, failed COAs, unsold promos
- Action: State-compliant destruction logs (witnessed, weighed, documented)
How to Track Inventory Waste (280E-Proof Method)
Follow this 4-step system used by top MSOs:
Step 1: Batch-Level Tracking in Metrc
- Tag every package with harvest/cure date, THC/CBD %, expiration
- Use Metrc’s “Adjust” function for waste (reason codes required)
Step 2: Daily Waste Log
- Date, Batch ID, Product, Weight, Reason, Witness, GL Code
- Auto-calculates COGS impact
Step 3: Weekly Cycle Counts
- Count top 20% of SKUs (80/20 rule)
- Reconcile POS → Metrc → Ledger
Step 4: Monthly Close Workflow
- Export Metrc waste reports
- Match to waste log
- Post to COGS sub-account: Inventory Waste – Expired, – Damaged, etc.
- Attach photos + disposal certs to journal entry
Final Verdict: Track Waste or Bleed Cash
Cannabis inventory waste isn’t “part of the business”—it’s a fixable leak. With 280E in play, every untracked gram is taxed as profit.
Start today:
- Download the waste log
- Set up Metrc waste codes
- Run your first cycle count
Your margins—and your CPA—will thank you.
✍️ By Daniel Sabet, Cannabis CFO & Financial Advisor at @GreenGrowthCPAs. Daniel advises cannabis operators nationwide on finance, compliance, and strategy.
