📊 The benefits to tracking your COGS correctly

The benefits to tracking your COGS correctly

In the US cannabis industry, financial management is essential due to the stringent regulations and the lack of federal support. Operators in this sector must ensure their financial decisions are being validated by accurate information, especially when it comes to the Cost of Goods Sold (COGS) and inventory management.

Understanding COGS in Cannabis Operations

COGS is vital for determining both profitability and regulatory compliance. It includes all direct costs related to producing cannabis products: materials, labor, and machinery. Given the regulatory challenges, selecting an appropriate method to calculate COGS, like FIFO (First In, First Out) or WAC (Weighted Average Cost), is critical for cannabis businesses.

Here’s the fundamental formula:(Beginning Inventory)+(Purchases)−(Ending Inventory)= (COGS Beginning Inventory)+(Purchases)−(Ending Inventory)=COGS

  • Beginning Inventory: Stock available at the start of the period.
  • Purchases: Items bought during the period for production.
  • Ending Inventory: Stock remaining at the end of the period.

Direct and Indirect Costs

In the cannabis sector, direct costs usually include:

  • Direct Materials: Costs of raw materials for product creation.
  • Direct Labor: Salaries and benefits for production staff.

Indirect costs, which are not part of COGS, include expenses like rent, utilities, and equipment depreciation.

Misclassifying these costs can result in inaccurate COGS figures, potentially misleading financial reports and strategic decisions.

The Role of Inventory in COGS

Effective inventory management plays a crucial role in controlling COGS. Techniques such as FIFO, LIFO, or JIT (Just-in-Time) help in managing costs:

  • FIFO is suitable for products that can expire, ensuring older stock is used first.
  • LIFO is beneficial during inflation, using newer, pricier stock first.
  • JIT reduces holding costs by aligning purchases with production needs.

In the fluctuating cannabis market, mastering these techniques helps stabilize COGS and predict profitability.

How Blakthumb Simplifies COGS and Inventory Management

Blakthumb offers a solution designed for the cannabis industry, simplifying COGS calculation and inventory management. With Blakthumb’s Services, operators can:

  • Keep precise and easily accessible financial records throughout production.
  • Use data to predict costs, set competitive prices, and handle taxes effectively.
  • Ensure compliance with state and federal regulations.

By automating these processes, Blakthumb lets operators focus on growth rather than administrative complexities. Accurate COGS tracking helps in making informed pricing decisions and planning for future changes.

The US cannabis market requires operators to utilize effective tools and strategies. Blakthumb helps you hit your targets and leverages your data to maintain a competitive edge. With accurate COGS monitoring and strategic inventory management, cannabis businesses can improve operations and navigate the complex regulatory landscape more effectively.

Blakthumb's support ensures cannabis operators are compliant, profitable, and ready for future challenges, enabling them to make every decision count in a market filled with both opportunities and obstacles.

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Would you like to see a demo of how Blakthumb tracks and manages your COGS? Schedule a time with the team 👉🏾 https://book.vimcal.com/p/careytaylor/30-minute-meeting

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, Blakthumb disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.


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