Inventory Management Strategies for Cannabis Dispensaries Explained
By Stu Waters
Excellent inventory management is crucial for any cannabis dispensary. State regulations are strict, and marijuana products need to be sold on a lot by lot basis.
Bad inventory management can lead to expensive, complicated problems. If dispensary owners fail to manage their inventory adequately, these problems can go completely unnoticed until regulators audit the retail license.
If that happens, it may result in fines, license revocation, and even criminal proceedings. Dispensary owners have a clear incentive to take inventory seriously.
The good news is that efficient inventory management can improve profitability and streamline daily operations. This helps pave the way for growth while ensuring the dispensary is fully compliant every step of the way.
Retailers in various industries use different inventory strategies to account for receiving products. The unique nature of the cannabis industry makes inventory management an Important issue for anyone running (or planning to run) a cannabis dispensary. Seed to sale traceability adds an attentional level of inventory tracking in stores; more than any other industry.
Retail Inventory Management Strategies
At its core, the cannabis dispensary is a retail environment. Retail managers can choose from several fundamental categories of inventory management strategies. The three most common ones are:
First-in, First-Out (FIFO). This strategy fulfills customer orders with the products that have been sitting on the shelf the longest. This helps ensure that perishable items get sold before their expiration date, which boosts profitability and protects against stockouts. This is the best practice for dispensaries. If you choose to employ another strategy, confirm with local regulators it fits with your local laws.
Last-in, First-Out (LIFO). This strategy assumes the most recently acquired product is also the first one sold. It’s suitable for non-perishable items, which makes it a bad fit for cannabis dispensary businesses.
Just-In-Time (JIT). This strategy favors large retailers that want to reduce the amount of company equity sitting in dead stock. It requires accurate forecasting to prevent stockouts but can reduce holding costs.
ABC Analysis. This is more of an organizing principle than a full inventory management strategy. It categorizes products by the profits they yield, proportionate to their sales frequency. It can help dispensary owners identify their most profitable products as well as their poor-sellers.
Of these options, FIFO inventory management is the most straightforward and profitable option for cannabis dispensary owners. Many states require cannabis products to be tested by a laboratory, and FIFO ensures that the tested products sell before their Certificate of Analysis expires—usually a six-month period (Note: this can vary on the state you are in).
There are few (if any) cannabis dispensaries large enough to warrant JIT inventory management. This may change over time, but it would probably require the establishment of a national cannabis industry, accompanied by federal-level marijuana legalization.
Obstacles to Efficient Dispensary Inventory Management
Incorporating a FIFO inventory management system in a cannabis dispensary environment requires tackling many obstacles that dispensary owners face. Some of the common pain points dispensary owners need to address include:
While working overtime might seem like an admirable part of what Ben Horowitz calls "The Struggle" the truth is that it will wear you out. Dispensary owners and managers need to delegate the appropriate tools and talent to complete inventory management tasks. This is best accomplished by planning to have appropriate positions in your dispensary. For instance if you are in a state where a seed to sale traceability software is in place, you will need a compliance officer or inventory manager to manage your inventory, both in your POS and your traceability system.
If a dispensary relies on manual data entry to input incoming inventory and input the same products’ data into regulators’ seed-to-sale tracking system, there will be backlogs. Those backlogs will lead to discrepancies with your inventory, which regulators will find and assess which fines to apply to your license.
2. Automated Auditing and Compliance
Reporting product sales and adjustments through your business isn’t enough. You also need to regularly run inventory audits to make sure that the physical inventory located in the dispensary corresponds with the data you’re reporting to the authorities.
Without automated reporting and compliance tools, this time-consuming necessity will become a complicated, labor-intensive exercise in frustration. Inventory auditing must rely on automated processes for finding discrepancies before regulators do.
3. Data Security
Regulators require cannabis dispensaries to hold on to customer and patient data long after it’s generated. This period can vary between two and seven years, depending on the state and local jurisdiction. At the same time, the data must be protected against theft and corruption.
Many of the same rules apply to inventory data. Dispensaries need to protect their systems against infiltration using tools like encryption and multi-factor authentication. This can also tax the already stretched resources dedicated to inventory management and compliance.
Using Auditing Tools to Take Control of Inventory Management
Dispensary owners who implement sophisticated point-of-sale systems with automated inventory tracking integrations are able to audit inventory with speed and efficiency. The practical benefit of automation streamlines every step of the process.
The typical cannabis dispensary needs to use two different approaches to inventory auditing:
This distinction helps auditing software accurately tell how much of the inventory’s overall value lies in each product category. The weight-based approach is ideal for dry marijuana bud, which has to be weighed, notated, and entered into the system. The unit-based approach applies to edibles and other products.
Conducting a weight-based audit manually is a tiring and time-consuming task. Automated point-of-sale software allows the audit officer to automatically scan and enter information into the system to verify in-stock quantities according to their respective Stock Keeping Unit (SKU).
Similarly, a fully-featured cannabis dispensary point-of-sale (POS) solution makes unit-based audits simple to conduct. The employee responsible for the audit only needs to scan each item, and the system determines if there are discrepancies between the scanned sum and the reported sum.
Green Bits allows cannabis dispensaries to select between Quick Audits and Inventory Audits, allowing dispensary owners to choose the audit format best-suited for the task at hand:
Quick Audits apply to a single section of the dispensary. This tool is ideal for quickly auditing inventory for one or two product types before closing. It can be done every day, with a new product type selected every evening.
Inventory Audits are comprehensive, store-wide audits. You should choose this audit format if your store has been burgled or robbed, or if you’ve become aware of severe discrepancies in your records.
Integrating Your POS, Inventory, and Compliance Solution
A lot of what factors into the administration of a cannabis dispensary goes beyond the act of buying and selling cannabis. The path to success is fraught with complexity and uncertainty. Dispensary owners and managers who take the time to establish robust systems that integrate POS, inventory, and regulatory compliance in a single solution enjoy the best platform for long-term growth.