Sourcing high-quality products and maintaining stock is crucial to any retail business, and cannabis inventory management is no different. However, stocking a dispensary with product presents challenges other industries don’t face.
Maintaining compliance and your reputation is of the utmost importance. what you put on your shelves is essentially what your business is known as, and customers will make a first impression based on their experience with your products.
Further complicating this process, you can incur heavy fines if you encounter an inventory-based compliance infraction or even license suspension.
Why cannabis inventory management is so important
Regardless of which part of the retail cannabis process you are in, cannabis inventory management should be one of your main focuses.
If you are applying for a cannabis license you’ll need to provide evidence of your knowledge when it comes to this aspect of the business. Many applications require this.
If you already operate a dispensary, you can benefit from streamlining your inventory system. This will reduce costs, labor, automate data, and most importantly, boost profits.
There are essentially two cases of poor inventory management – not enough stock, and too much stock. They are both problematic in that they decrease sales at your retail storefront. In the cannabis industry, goods are perishable. This means that excess product may get thrown out, cutting profits. On the flip side, constantly running out of top-selling products will lower your sales.
To add another wrench into the mix, it is on you to remain diligent in your record-keeping and inventory control measures. You must track and report your inventory depending on the laws in your respective city/state. If you make mistakes here, you can be penalized, fined, or even suspended.
On top of that, a good cannabis inventory management system ensures a good customer experience. Many consumers in this industry have favorite brands, strains, and products. If they know they can count on you to have those products available, you’ll have a lifetime customer on your hands. On the other side of the coin, one bad experience can leave a lasting impression.
How to manage inventory at your retail cannabis store
To a certain extent, you’ll need to manually check stock. I recommend doing this often, at least a few times a week. This is obviously not scalable and does allow for human error, though. These days, the easiest and safest option is with a Cannabis POS and Inventory System. But, there are so many different options out there, how do you choose one?
Choosing a cannabis POS and inventory management system
There are tons of POS and inventory management systems out there for dispensaries. But, not every one of them will be right for your business.
If you have a super high product turnover rate in your store, and deal with high volume sales, your system needs to not only be reliable but also have swift transaction times to decrease customer waiting. You’ll also want one with offline backup in case your wifi crashes, especially on days like 4/20 or 7/10.
On the flip side, if you are looking to provide a super unique experience for your customers, maybe you want a POS service that allows for tablets to be spread across the store, and customers can add to cart on those and head to the cashier for a quick checkout.
Some POS and inventory management systems even include mobile-friendly features. This will allow you, the store owner and operator, to monitor sales and inventory activity remotely, freeing you from constantly being chained to your store! After all, the end goal is to work ON the business, not IN the business.
The basics of cannabis inventory management
Once you have a POS and inventory management system in place, its as simple as uploading your products and making sure everything runs through the system. This includes:
- Product Name – You need a consistent naming scheme to identify products. For example, Raw Garden (brand) Banana OG (strain) Cartridge (product type).
- Product description – short section about the product. What is it, what are the notable effects it produces, lineage, testing info?
- Product image – Some overlook the importance of product images, but it really is important.
- SKU – this is the “stock keeping unit” and will be the data point that actually measures your inventory. More than likely, the products your vendors send you will have barcodes associated with each SKU, allowing you to easily scan them into your system
- Cost – what you pay to get the product on your shelves
- Price – what the customer pays to get the product OFF your shelves! Make sure you have margin, this is pretty self-explanatory.
- Vendor information – Info about the supplier of the product
- Quantity – This helps you actually manage your inventory. It can give you estimations about when you need to reorder, which will become more accurate the more data you accumulate.
Your cannabis POS and Inventory management system will likely include more than just these metrics and data points, but this is the bare minimum you need to run a successful retail cannabis shop.
One important note I’d like to make is be consistent with your data logging. This is especially important when it comes to product naming schemes. Follow something basic, like Brand + Strain + Product Type. If you have any variations in your naming scheme, it will confuse not just you and your staff, but your customers. By the time you realize what a mess it is, you’ll have a lot of untangling to do.
Manually auditing your cannabis inventory
Just because you have a fancy POS and inventory management system in place, doesn’t mean you should rely on it 100% of the time! Its still important to conduct regular inventory audits to ensure there are no discrepancies between the inventory you have online and what is actually on your shelves. If you see this, it can be one of two things: human error entering numbers into the system, or theft.
Both of these are serious issues that you as the owner are responsible for investigating.
I know auditing your retail cannabis shops inventory sounds daunting. With an average of 500+ different SKUs at any given time, how are you supposed to do this efficiently? Its actually not that hard!
Schedule regular inventory audits
Creating a regular schedule makes the process more efficient and less chaotic. You can also use your POS system to audit inventory manually once it reaches a feasible point, such as less than 25 units.
This process should not be overlooked. In fact, many states require this process. Oklahoma requires a monthly inventory reconciliation report on the 15th of every month. California requires it every 30 days, and our friends up north in Ontario are requires to properly track, report, and submit a report on inventory by the 5th of each month. You’ll need to create a schedule that’s congruent with whats required by your state authorities.
Streamlining and Optimizing cannabis inventory management
Keeping track of inventory is one thing, but optimizing the flow of products through your store is important for longevity and profit maximization. So, you first need to learn how products move through your store. The KPI’s I suggest you monitor are:
- Inventory Turnover – how quickly you move products off your shelves. The quicker you can move the product, the better, because it ends up costing you less!
- Days of Supply– this KPI will display how much stock you have left in terms of days. This is a super important metric from preventing you from going out of stock. If you notice you have 10 days of supply, and you know it takes you 7 business days to get a new shipment, its time to order! Many POS systems can trigger alerts, which you set when its time to put an order into a supplier. Likewise, if you see your Days Of Supply is stagnant, at around, say, 90, you may have excess supply.
- Average Age Of Inventory – This metric tells you how long your product has been sitting on the shelf. The older your inventory, the more it’s costing you. Watch this KPI closely and if your inventory starts to become a few months old, try lowering the price, repositioning it on shelves, whatever it takes to move it.
- Product Performance – This might be on the most important KPI’s to your retail cannabis shop. It indicates your top-performing products at a given time and will help you understand how you should display your inventory to customers.
- Gross Margin – This is one you obviously need to pay attention to – the longevity of your retail storefront depends on it. If you cannot turn a profit, you are doing something wrong, and it’s up to you to look at other KPI’s to determine what exactly that is.
There are plenty more KPI’s, but it can be easy to get bogged down by the numbers. Focus on a few, and analyze them periodically (not daily).
Final thoughts on cannabis inventory management
This is a complex subject, far more in-depth than I can go into in a single blog post. Reach out to me, Rob Hendrix, with any questions you have about inventory management at your retail storefront – I’ve come up with a system that works for me, and has allowed me to remain infraction-free and successful over the past 5+ years!