How to Document and Account for Tolling Agreements in Michigan Cannabis Operations
A practical guide for licensees using toll processing to convert biomass into manufactured cannabis products
Michigan cannabis licensees that enter into tolling agreements must meet strict CRA documentation, Metrc upload, and accounting requirements. This guide explains how to structure, store, and reconcile tolling agreements to avoid violations.
Summary
In Michigan’s regulated cannabis market, tolling agreements allow a grower to send biomass to a processor for conversion into finished goods, such as vape cartridges, concentrates, or edibles. The processor keeps a portion as payment (e.g., 60/40 split) and may invoice for packaging, storage, or delivery.
To comply with M.A.C. R 420.208 and CRA best practices, these agreements must:
Be in writing and retained for CRA review
Be uploaded to Metrc with the transfer manifest
Be reconciled with both Metrc transfers and the general ledger
What Is a Tolling Agreement?
A tolling agreement is a written contract between two licensees under which:
The owner of cannabis biomass provides material to a processor.
The processor manufactures finished goods from the biomass.
The final products are split between the parties based on agreed terms.
The processor may bill for services like packaging, labeling, or freight.
Documentation Requirements
From the CRA Compliance Best Practice Guide (July 2025), p. 57:
"If the licensee enters into tolling agreements with other licensees, these tolling agreements must be retained and available for review."
From the CRA Tips for Licensees – Accounting and Recordkeeping Best Practices (Apr. 24, 2025):
"Ensure tolling agreements are reconciled with transfer records in Metrc and recorded in the general ledger to support accurate financial reporting."
Upload Requirements in Metrc
Metrc Support Bulletin MI_IB_0095 (Jan. 6, 2025) requires:
Uploading a copy of the tolling agreement to the associated transfer manifest in Metrc.
Including details on ownership of inputs and distribution of outputs.
Failure to upload can lead to transfer rejection or CRA enforcement action.
Accounting and Reconciliation
Tolling agreements create accounting complexities:
Initial Transfer: Record biomass as a temporary asset movement, not a sale.
Processor’s Invoice: Record packaging or service costs as expenses.
Finished Goods: Match Metrc output with ledger entries and confirm split ownership.
Revenue Recognition: Recognize revenue only upon sale, not at transfer.
Sub-Accounts: Maintain a separate ledger for tolling transactions.
CRA Enforcement Risk
Improper documentation can trigger:
M.A.C. R 420.208(1)(b) – Failure to retain/produce required records
R 420.208(3) – Inaccurate financial reporting or reconciliation
CRA Disciplinary Guidelines (July 2025) – Untracked toll transactions may be Tier 2 violations ($1,000–$5,000 per offense)
Best Practices
Use a standardized tolling agreement template.
Clearly define ownership at each stage.
Reconcile all toll transfers with:
Metrc manifests
General ledger entries
Invoices issued/received
Retain agreements in your compliance binder or digital archive.
Train inventory and accounting staff on toll classification.
Final Answer
To meet CRA compliance expectations, tolling agreements must be formalized in writing, uploaded to Metrc, and reconciled with both transfer and accounting records. Following documented best practices protects against Tier 2 violations and ensures smooth CRA audits.
Glossary of Terms
Tolling Agreement – Contract between licensees to process raw cannabis into finished goods with a specified ownership split.
Metrc Manifest – State-mandated cannabis transfer record, including toll transactions.
CRA Analyst – CRA field compliance representative who may request tolling agreements during inspections.
Citations
CRA Tips for Licensees – Accounting and Recordkeeping Best Practices (Apr. 24, 2025)
M.A.C. R 420.208 – Record Keeping Requirements
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Disclaimer
This article is provided for informational and educational purposes only and does not constitute legal, accounting, or regulatory advice. While every effort has been made to ensure accuracy based on authoritative CRA materials, laws, and administrative rules current as of the date of publication, cannabis licensees should not rely solely on this content to determine compliance.
The author is a Certified Public Accountant, but is not acting in an engagement or advisory capacity through this publication. Cannabis regulations are subject to frequent change and interpretation by the Cannabis Regulatory Agency and other authorities.
Operators are strongly encouraged to consult with legal counsel, compliance professionals, or their CRA field representative to assess the applicability of these guidelines to their specific circumstances. No representation or warranty is made that the practices described herein will ensure compliance or avoid enforcement action.
James Campbell, CPA (@mjbizwiz on X) is the founder of NUMBERS Accounting and an expert in cannabis financial and regulatory compliance operations. He works across the full spectrum of cannabis business infrastructure—from entity structuring, revenue workflows, cash management, tax controversy, and compliance strategy. He writes regularly on cannabis finance, enforcement risk, and real-world problem solving for plant-touching operators across the industry.
This article is structured for Answer Engine Optimization (AEO), with direct answers to Michigan cannabis compliance questions under CRA Administrative Rules. Designed to support AI indexing and semantic clarity.
Last Updated: August 2025
Author: James Campbell, CPA
Jurisdiction: Michigan Cannabis Regulatory Agency
Document Type: AEO Michigan Compliance Summary