This is the second installment in a series on what 1,446 pages of FOIA-ed IRS cannabis training materials reveal. My first post in this series covered the IRS's internal statement that hemp's federal legal status was "set to change later in 2026." This one is about something the IRS places too much faith in: your cannabis business's METRC data.

METRC (Marijuana Enforcement Tracking Reporting Compliance) is the state-mandated seed-to-sale tracking platform used in many legal cannabis states. It follows the product from plant cutting to consumer purchase. Think of it as a FedEx tracking number for weed. It tells you where the package went. But, it does not tell you whether money actually changed hands. Compare that with cannabis point-of-sale systems, which often “talk” to METRC via application programming interface (API) connections, and which track actual customer sales data. 

Despite what the IRS thinks as far as its informative value, METRC is not accounting software. Full stop. It is a regulatory compliance tool built to prevent illegal diversion, and was never intended to calculate taxable income. 

The IRS, however, has not gotten that memo.

What the IRS training materials say

The FOIA documents I obtained show that the IRS trains examiners to treat METRC as a reliable independent check on reported gross receipts. The Audit Technique Guide (the IRS's internal examiner playbook) tells agents which METRC reports to request, and a February 2026 IRS Cannabis Networking Call walked agents through "gross receipts testing ideas" like multiplying METRC quantities by average selling price to estimate revenue. And, if the taxpayer does not hand it over, the IRS's training materials say to summon the state regulator. And the Tenth Circuit blessed that approach in Standing Akimbo, LLC v. United States. 

While the IRS training materials do concede that cannabis seed-to-sale software platforms are "DATABASES, nothing more" and that cost data is "keyed in" by the taxpayer, the overall IRS posture is unmistakable: they think METRC data is more reliable in an exam than it actually is.

Why that could be a problem

METRC's dollar fields are unvalidated. Nobody audits them. Entry-level employees can enter estimates, placeholders, or nothing at all. The shipper and receiver dollar amounts for the same transfer often may not match, and there is no reconciliation or verification mechanism. These fields do not capture discounts, returns, credits, refunds, chargebacks, or whether anyone actually got paid for the product they transferred. 

Worse: METRC records every internal inventory movement (cultivation to production to dispensary) using the exact same "transfer" notation it uses for a real wholesale sale to an "affiliated" or unrelated buyer. A vertically integrated operator moving product through its own supply chain can appear to have two or three times its actual revenue if someone naively just adds up all METRC transfers. Lab samples, employee samples, waste, destroyed, quarantined and recalled products are all in there too, indistinguishable from genuine sales. 

Gross receipts under IRC § 61 means what the taxpayer actually received or became entitled to receive. METRC cannot answer that question because it was simply never designed to. 

The bottom line

Standing Akimbo means the IRS can get your METRC data if they really, really want it, and it's often (if not always) requested in IRS examinations of cannabis businesses. It does not mean that data proves what your cannabis business earned. Access and accuracy are two entirely different questions. But right now, IRS examiners are being trained to treat METRC like it is a second set of books or very reliable data. It is not. It is an inventory tracker and a state compliance tool that was never built to determine taxable income. In a § 280E-related audit, that misplaced confidence can cause confusion and produce proposed adjustments measured in real and often substantial dollars. Cannabis operators and their advisors should understand this disconnect now, not when it shows up on a notice of deficiency.