Verifying revenue with track-and-trace data

Why track-and-trace data matters to a buyer

Every state-licensed marijuana business reports inventory movements and sales to a state seed-to-sale system. For a buyer, that is a second set of books kept under regulatory penalty. Few other small-business sectors offer one.

It has limits. The licensee enters the data, so it can be wrong or manipulated. It records units and sale amounts, not costs or profit. And it only covers regulated cannabis goods, so accessories and other non-cannabis sales will not appear. The value comes from comparing it with records the seller cannot easily keep consistent with a false story: the point-of-sale system, the bank, and tax filings signed under penalty of perjury.

How these systems work in a transaction generally is covered in track-and-trace systems and transactions. This page is the reconciliation method. It is educational, not accounting advice.

What to request

Ask for raw exports in spreadsheet format, pulled by the seller while you or your adviser watch on a screen share if there is any doubt. Do not accept retyped summaries.

Record	What to request	Period
Track-and-trace	Sales, transfers in and out, package adjustments, waste and destruction, active inventory	24 to 36 months
Point of sale	Daily sales summary by tender type, discounts, returns, voids, tax collected, sales by category	Same
Cash	Daily drawer counts, vault log, armored-car or deposit receipts	Same
Bank	Statements for every account	Same
Tax	Sales tax, cannabis excise, and local cannabis tax returns; federal and state income tax returns	All periods covered
Purchasing	Supplier invoices and transfer manifests	Sample months

In Metrc, grids can be exported directly by the licensee, and retailers report every sale, package adjustment, and transfer to the state. First confirm which system covered which period. Illinois and New York have been migrating from BioTrack to Metrc, so a three-year review there may span two systems and a migration month that needs extra care. The system used in each market is listed on the state pages.

The four-way reconciliation, step by step

Step 1: Track-and-trace sales to point-of-sale sales

Total the state system’s sales by month and compare with point-of-sale cannabis sales before tax for the same months.

• Match the definitions first. Decide whether each report shows amounts before or after discounts and whether taxes are included.
• Strip non-cannabis items (accessories, apparel) out of the point-of-sale figure, since they are not reported to the state.
• Expect small timing differences where the point of sale pushes to the state system in batches, or where sales near midnight fall on different dates.
• Investigate any month that differs by more than a fraction of a percent after those adjustments. Common causes are integration failures that were never corrected, voided sales reversed in one system only, and manual sales entered during outages.

Step 2: Point-of-sale receipts to cash and bank

Take point-of-sale totals including taxes collected, split by tender type.

• Debit and cashless-ATM receipts should match processor settlement reports and the matching bank credits, net of fees.
• Cash receipts should match daily drawer counts, then vault log entries, then either bank deposits or documented cash payments out of the vault.
• Build a monthly cash proof: opening vault balance, plus cash sales, less deposits, less documented cash paid out (vendors, payroll, taxes), equals closing vault balance. Then count the vault.

Cash paid to vendors is common in this industry. Each payment should have an invoice and a manifest behind it. The IRS advises cannabis businesses to record transactions daily, and requires Form 8300 within 15 days when a business receives more than $10,000 in cash in one or related transactions, so a wholesaler taking large cash payments should have those filings.

Step 3: Revenue to tax returns

Compare the same revenue with what the seller told tax authorities.

• Sales tax returns: reported gross and taxable sales by period.
• Cannabis excise returns: in California, retailers owe 15% of gross receipts on retail sales from 1 October 2025, and gross receipts for this purpose exclude sales tax. Dividing excise tax paid by the rate gives an implied revenue figure. Other states’ rates and bases are in cannabis excise and potency taxes by state.
• Local cannabis business tax: usually a percentage of gross receipts, filed with the city.
• Income tax returns: gross receipts on the federal return should equal the full-year total, adjusted for the entity’s accounting method.

Revenue that is higher in the sale materials than on tax returns leaves two possibilities. Either the marketing figure is inflated, or tax was under-reported and a liability exists. Both matter to the price. See tax liabilities and holdbacks in a sale.

Step 4: Inventory roll-forward

Revenue has to come from product. For sample months, test the unit flow:

Opening inventory, plus transfers in, less units sold, less waste and destruction, plus or minus adjustments, equals closing inventory.

Then test the pieces:

• Transfers in should match supplier invoices and manifests from licensed sources, and purchases in the ledger.
• Review the adjustment log. Metrc requires a reason code and an explanatory note for each quantity adjustment. Sort by size, reason, and user.
• Ask for the periodic reconciliation records the state requires. California licensees must reconcile physical inventory to the system at least every 30 calendar days, and a 5% difference is a significant discrepancy that must be reported.
• Do your own physical count of a sample of packages against the active inventory report.

Step 5: Sample individual transactions

Pick 20 to 40 days at random, plus the highest-revenue days. For each, trace a handful of receipts from the point of sale to the state system entry (package tag, quantity, price) and to the day’s cash count or settlement. This catches fabricated or duplicated sales that survive at summary level.

Illustrative reconciliation

Illustrative only. One month for a single adult-use store in California.

Line	Amount
Track-and-trace sales, before tax	$412,600
Point-of-sale cannabis sales, before tax	$414,100
Difference	$1,500 (0.36%)
Explained: two days of manual sales during an integration outage, entered late	$1,350
Unexplained	$150
Point-of-sale accessories (not in state system)	$9,800
Total point-of-sale sales before tax	$423,900
Excise tax reported for the month’s share of the quarterly return	$61,890
Implied cannabis gross receipts ($61,890 divided by 0.15)	$412,600
Cash sales per point of sale, including taxes	$318,000
Bank cash deposits	$246,000
Documented cash paid to vendors and payroll	$66,500
Increase in vault balance, counted	$5,500
Cash accounted for ($246,000 + $66,500 + $5,500)	$318,000

This month reconciles. Note that the excise return agrees with the track-and-trace figure rather than the point-of-sale figure, which suggests the $1,350 of late-entered sales may not have been picked up for excise purposes. Small, but it goes on the questions list.

Now change one line. If bank deposits were $186,000 with the same cash-out documents, $60,000 of cash is unaccounted for in one month. Either sales are overstated, cash left the business undocumented, or expenses were paid off the books. Each answer changes the deal.

What the gaps usually mean

Pattern	Likely explanations
Point of sale higher than state system	Integration failures, unreported sales, or non-cannabis items not removed
State system higher than point of sale	Sales entered to clear missing inventory, or a second sales channel not shown to you
Revenue higher than tax returns	Under-reported tax, or inflated sale materials
Cash sales higher than cash accounted for	Skimming, undocumented owner draws, or off-book expenses
Frequent large negative adjustments	Theft, diversion, poor receiving, or drying and moisture loss booked inconsistently
Discounts above 20% to 25% of gross sales	Revenue quality problem: volume is being bought with margin
Units sold exceed units received plus opening stock	Data integrity failure that needs explaining before anything else

Several of these overlap with the broader list in red flags when buying a cannabis business.

Cultivators, manufacturers, and distributors

Wholesale businesses have no retail point of sale, so the four records change:

1. Track-and-trace transfers out by manifest, with quantities and receiving licensee.
2. Sales invoices and the receivables ledger. Every manifest should have an invoice, and every invoice a manifest.
3. Cash receipts and bank deposits, matched to invoices. Watch for invoices that are never collected. In oversupplied markets, reported wholesale revenue can include a meaningful share that buyers never pay.
4. Tax returns, as above.

For cultivators, add a production test: canopy area, harvest wet weight, dry weight, and waste in the state system should be consistent with each other and with the volume sold. Yield per square foot far above what the facility’s lighting and layout support is a question for the head grower. Context is in cultivation valuation per square foot and per pound.

Using the results

• Set the price on proven revenue. If only part of the claimed revenue reconciles, value that part.
• Turn the reconciliation into a representation. The purchase agreement can state that track-and-trace, point-of-sale, and tax filings are accurate and consistent, backed by indemnity.
• Re-run it before closing. Pull the final months and repeat steps 1 to 3. The closing process should include a physical inventory count tested against the state system on the day.
• Feed it into the wider review. Revenue is one workstream of ten in the cannabis due diligence checklist.