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.
At the very least, you need to make sure your system operates well with common online platforms like leafly and weedmaps.
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!
Many entrepreneurs are wondering how to start a cannabis business, as this industry reminds some of the gold rush with everyone rushing to claim a stake.
But starting a successful cannabis business is not for everyone. Once you start to peel back the layers of the industry, you’ll have a better understanding of what you’re up against.
I say this not to scare you away but rather to help you manage your expectations. This can be a very rewarding pathway for the right person, but again, the legal cannabis business is not for the faint of heart!
Let’s get started.
What you need to know about getting into the cannabis industry
If you are wondering how to get into the cannabis industry, don’t worry, we will get there, but first its really important that you manage your expectations.
Prepare for an invasive vetting process
If you are hoping to open a retail cannabis store, or any other licensed cannabis business, you are going to need to prepare for an invasive process.
One of the first steps in the vetting process will be a background check.
In Washington State, we had to undergo two (2) separate background checks; our own Washington State Patrol and one administered by the FBI. There will likely be a “points system” of sorts, but this varies State by State.
So while you don’t have to be a Boy or a Girl Scout, you’ll have to be pretty darned squeaky clean. And, anyone who may have a financial interest in the business will be subjected to these background checks. This includes spouses.
The cannabis industry is unlike any other
Because you are operating a business that is illegal at the Federal level, you will run into issues with taxes, insurance, banking, mortgages, lease agreements, and more.
Many times these “issues” will feel unfair. After all, it’s legal in your state, right? Unfortunately it is not that simple, and in fact, very few things in this business are uncomplicated. You’ll face roadblocks, impediments, and bumps in the road that “normal” businesses wouldn’t.
Expect the unexpected
You’ll also need to expect the unexpected. This is still a relatively new industry, and things are constantly changing around us. Even in an established, relatively mature industry like Washington State, I need to be nimble and ready for almost anything at a moments notice.
If you are in a State just entering the legal cannabis industry, hang on tight while things shake out! You’ll want to be wary, especially if your state has just legalized adult-use cannabis in particular.
It could be a bumpy ride for a variety of reasons. Plan for the regulatory “goal posts” to be moved somewhat in the opening months with changes in rules, regulations, requirements, etc.
As the proud owner of a licensed cannabis retail store in Ellensburg, Washington for the past five years, I am here to tell you it is possible. If you are still reading, it means I haven’t scared you off, which is a great sign! Now, let’s dig just a bit deeper as to how to get into the cannabis industry.
The definitive guide on how to start a cannabis business
Just like any business, starting a successful cannabis business requires real work. You need a strong “why” to remind yourself of during the darker times.
If you have a strong purpose, good organization in the form of a business plan, and the right guidance, you can be very successful. Here are some recommendations on how to begin.
Do your research
This might be the most important step of all. We touched on it at the beginning of this article, but you need to be aware of what you’re up against. You can start by learning about cannabis in general, along with the history of the industry.
On a more specific level, you need to have a deep understanding of the regulations in your respective state. Starting a cannabis business will involve many of the same steps across state lines, but there will likely be intricacies in your state. You’ll need to be totally familiar and comfortable with these details. These include eligibility, how to start the application process, whether you will take the medical or adult-use route, and more.
Get familiar with which government entity is going to regulate cannabis in your State. In Washington, the Liquor Control Board (LCB) was selected to regulate cannabis. Knowing who you are going to be dealing with is very important.
Write your business plan
Next, you’ll need a business plan. This is not just for your sake, but for the application process. Most states require a business plan to even begin the application process, and it will need to be very detailed.
Make sure the business plan takes into account every law in your State; location, vendor relations, employment, funding, and more. Here are some of the most important elements to include in your plan for the highest probability of success:
Develop a Mission Statement for your would-be business. This should speak to your goals and values you will want to embrace as the owner.
All of your anticipated expenses, projected revenues, and profit
A key component in any business but of critical importance in retail cannabis will be sources of inventory. You will want to begin forging relationships with possible wholesale sources for product for your store(s).
The licensing process can vary by state, but in Washington, the LCB took all of the qualified applicants and quite literally drew names out of a hat.
There were to be two (2) picks in our town, Ellensburg, and we were drawn #2. However, we were first to open in the city, as well as the county. We were #37 licensed in Washington, and the 23rd to open and begin reporting sales. We also, at the time of writing this, are one of just a handful of stores in the State with zero violations.
If you are selected, you will need to be ready to act. Your research will be essential here, as you prepare all the necessary documentation. You may be asked to work with a number of regulatory bodies throughout the licensing process. Although, in Washington State, I was assigned a Licensing Specialist. I worked with them exclusively for the entire vetting, pre-opening and grand opening phases over a six (6) month period.
Setting up your cannabis business at the state and federal level
Before you start operating your cannabis business, you will need to register your business with your Department of State. In my opinion, you need an accountant. They can help you set up your business in the proper fashion at the Federal level as well. This will be imperative in obtaining, among other things, an EIN (Employer Identification Number), also known as a business tax ID number.
Since cannabis is still a Schedule 1 controlled substance, normal business tax rules and tax deductions do not apply. The Department of Treasury will allow such a business, but they will tax very heavily. You’ll need to learn about a section of the US Tax Code, 280E. You’ll have plenty of things that may keep you awake at night when starting a legal cannabis business. Don’t let IRS worries be one.
Get funding for your cannabis business
Finding a source of funding for any business can be challenging, but this is further complicated in the cannabis industry (are you seeing a theme here?).
Because marijuana is federally illegal, banks will not offer you a loan, nor will many venture capitalists. The risk for them is too high in most cases, as the government could pursue legal action against them for their involvement in the cannabis industry if desired.
However, if your business plan is solid, you will eventually find an investor willing to work with you. My wife and I made 37 presentations to would-be investors, but I could never quite put a deal together.
The people I spoke with wanted too much for too little, so at the end of the day, we mortgaged everything and took the plunge alone.
Times are changing
It is a new day and time in the cannabis industry now; I was a sort of pioneer, a trailblazing guinea pig is how I always described myself! Nowadays it may be different, even a little easier for you.
But, I know one thing for sure: it will be substantially easier for you if you hire me to help you with this process! If I could have hired the Rob Hendrix of 2019 back during the Summer of 2014, that would have had a profound effect on my success, and more importantly my stress levels!
If in fact you decide to make a go of it on your own or with private and/or family funding, I can assist with that process as well. Bootstrapping a cannabis business is an area many typical cannabis agencies are sorely lacking in, but thankfully, I am not a “typical cannabis consultant”.
Bootstrapping, the idea of proceeding ahead into the cannabis business alone, is an area of expertise that is seriously lacking in the cannabis consulting arena. I have already done the hard work, and am familiar with the do’s and don’ts. Let me help you.
Banking for your retail cannabis store
Another facet of getting funding for your cannabis business is finding a bank willing to work with you. We have an entire article dedicated to cannabis banking.
In all likelihood, you’ll have a hard time finding a bank willing to work with you at first, especially in newly legal states. There are ways to function within these restraints, which we dive into in that article.
Need help starting a cannabis business?
I have been through it all, seen it all, dealt with it all. I have been a hands-on owner who has persevered through short supplies and crazy high prices. In fact, I have even worked with our regulatory body, the LCB, in our capital, Olympia, to effect changes so our industry can survive and ultimately thrive. After all, it is our responsibility as participants in the industry to see that we further it for everyone.
If at any point in your own personal process you are feeling overwhelmed, troubled or lost, I can help. I started Cannabis Consulting Nationwide to help people just like you, and now, you truly have a friend in the cannabis industry. (I know that sounds contrite and cheesy but is the truth!)
Having someone in your corner from the start can be a huge asset. I can help ensure you won’t be surprised by anything. If you have any questions at all, reach out to me and I’ll be happy to chat with you! The first hour of phone time with me is always free. Call me, there is no such thing as a dumb question and there is practically nothing I wouldn’t send you upon request. Looking forward to meeting with you.
Once you’ve found your retail cannabis location, it is time to plan your dispensary design standards. Designing a dispensary is tough, because what “looks good” is very subjective, lying in the eyes of the beholder. However, there are some definitive standards that I believe are critical to each and every retail storefront, to accomplish three goals:
Functionality and flexibility
Public appeal and inclusion
Security and safety for employees
There is a lot that goes into designing a retail cannabis store -- especially from a compliance standpoint. It can be tough to put your store together in a manner that pleases the state. And, you also need to focus on providing the best customer experience. But, we were able to do it in our store! Now, I’m going to teach you everything you need to know.
Why dispensary design standards matter
You already know that your dispensary design will be a huge factor in whether or not people come back to your store. It’s not easy to win someone’s business over, and get them in your doors. So, you need to make sure that they enjoy every aspect of being in your store.
That means they need to feel welcome, the dispensary floor plan needs to be functional and pragmatic, and it needs to be secure. There is so much that goes into designing your store, and you need to get it right the first time. So, without further ado, let’s dive in!
How To Design A Dispensary That Meets All Three Goals
Most often, you won’t be securing a perfect building for your retail cannabis storefront. It’s much more likely you’ll be taking an old home, office, or other retail store and completely renovating it for your purposes. There is a ton that goes into this.
Regardless of whether you have any design experience or not, the process of building out a retail cannabis shop can be overwhelming. But, when broken down into the three categories we outlined previously, its much easier.
Layout, functionality, flexibility
Design, public appeal, inclusion
Security, safety, and compliance
Design your layout in a functional manner
This is the first step in designing your dispensary. Think about things such as flooring, and determine if the climate in your specific state warrants a special type. If your climate has tons of snow, you’ll want to invest in flooring that’s easy to clean and can handle people coming in every day tracking slush. Once your store is up and running, you really don’t want to have any down days where you need to replace the flooring, so think it through the first time.
Another thing you need to consider is how you are going to receive inventory and stock it. At Cannabis Central, we use slat walls and pegs for a majority of our merchandise. These are flexible, attractive, and very easy to use and rearrange.
Back stock is stored in flexible, lightweight, and attractive “boxes” which are constructed of thick material that can fold for easy storage. I have glass display cases as well where we stock many items including but not limited to topicals, papers, pipes, and various paraphernalia.
Think about how many rooms your location has, and their respective sizes. Ideally, your store would consist of at least 2-3 rooms -- one for waiting, one for shopping, and one for employees only.
Many dispensaries don’t have a customer restroom, and with long waiting times, this can be a huge inconvenience for customers. Having a restroom in the lobby can be the difference between a customer coming back to your store or opting for one up the road.
You also need to make sure your store is wheelchair accessible. After all, your store needs to not only be cannabis compliant, but compliant with business laws in general! Many of your customers are going to be medical patients, and some will surely be handicapped.
If its not easy for them to enter and leave your store, and there isn’t ample room for a wheelchair in your store, they definitely won’t be coming back. The last thing you want is for a customer to feel discriminated against, or inconvenienced.
There are plenty of other things that go into building a functional layout, such as having a secure front desk separate from the waiting room (not a necessity, but definitely nice for your employee’s safety!), being able to fit all your merchandise in the store, and more. If you have any questions about this, let’s chat!
Think about dispensary security when you design the store
You need to put a good amount of thought into your store from a security standpoint. There are certain states that require different things than others when it comes to security, so you’ll need to do some research here. For example, in Washington state, having a security guard out front is not required. In some states, however, it is.
We touched on it briefly above, but having a secure check-in station is a really good idea. God forbid its every needed, but keeping your receptionist separate from the lobby is a smart, secure measure. You don’t necessarily need to go the lengths of installing bulletproof glass, but having a window between your receptionist and the lobby will also give your dispensary a more professional vibe.
Another security measure you’ll need to take is installing cameras. More than likely, your state will require that you have security cameras and capture every square inch with video surveillance, 24/7. This means outside, in the lobby, in employee-only rooms, and especially in the shopping area. This will help immensely in preventing any sort of theft, and will also keep you covered from a compliance standpoint. On that note, you’ll need to keep video footage for up to 34 days depending on where you are located.
Similar to many retail stores in any industry, you’ll want to maintain barriers between product and customers, and make it as hard as possible to shoplift. Glass display cases are a must, but even just having some sort of barrier between customers and products on the wall is enough. Many of your customers will want to inspect your inventory up close to see the quality and smell, so having samples on display is a good idea. They need to be easily accessible by your staff.
We always have no less than two (2) employees on shift and on-premises at all times. We have outside areas designated for employees only so they have a place to go for lunch, breaks, etc.
We also have a very robust security system as per State laws, but we have gone further. We have worked with local law enforcement and have installed “imminent danger” alerts. Basically they are small discreet switches with buttons, that if held down for two (2) plus seconds, will send out a silent call to the local police department.
This is a signal that in effect is communicating at least one of our employees feels him or herself to be in “imminent danger” and to respond accordingly. Everything in our shop is insured and replaceable, except our people themselves.
Our employees need to feel appreciated, safe, and cared for. Safety and security are key components in our employees feeling comfortable while working and this works to make the customer experience that much greater.
Design your store to align with ALL your customers
Everyone remembers their first experience in your dispensary, and you want to leave a good impression. You want every customer that comes through your doors to feel welcome, and want to come back. Your layout should be congruent with your branding. Here are a few dispensary design standards:
Have an open floor plan-- You need to make sure there is TONS of room on the sales floor in your dispensary. Having a cramped space will make customers feel uncomfortable, and will hinder your ability to get people to come back.
Avoid clutter, and be thoughtful about merchandising- While having your products displayed throughout the interior may be ideal in the electronics industry, this is not the case for cannabis products. You may want to wrap your products around the perimeter, on walls, and in glass cases.
Pay attention to ambiance and branding- The ambiance of your store needs to align with your brand. If your brand is geared towards a more professional, medical demographic, it wouldn’t make sense to have rap music blasting in your store with graffiti art on your walls, and dim lighting. But, if you are designing a recreational dispensary marketed towards younger folks, maybe this is what you need!
Lower wait time with your design- One of the best ways to lower wait time in your dispensary actually factors into your design. You will likely have a line that wraps around your shopping center on your busier days, and you can cut down on wait times by presenting plenty of signage and educational information on the products around the store. Having menus all around the store with vital information such as strain name, cannabinoid content, prices, sizes, and more, will help customers make decisions while they wait. So, when they get to their budtender, they are ready to go!
Provide educational content materials-- A great way to build authority for your retail cannabis store as a source of reliable information is to incorporate educational materials into your dispensary design. You can use videos, posters, magazines, tablets, and more throughout your store to teach your customers while they shop.
Optimal Lighting-- A huge, often overlooked part of your design is your lighting. One of the main issues I saw with common dispensary designs was a dark, dimly lit store. We wanted ours to be very bright and welcoming.
Why public appeal matters & how your employee’s factor in
When we talk about public appeal as it pertains to your storefront, we are talking about the overall cleanliness, ambiance, and legitimateness your store portrays. We think its important to “look our best” for our customers aka guests. All employees are charged with and all gleefully accept responsibility for cleaning and disinfecting the store constantly throughout the day. They do a fantastic job too!
Customers have choices as to where and how they spend their hard-earned money so when someone, anyone, walks through my front door, I want them treated and made to feel like a welcome guest in our “home”. All our employees believe and understand this. This is very powerful and contributes to our being our customers’ “happy place”. In fact, we have banners on our building that read, “Spread the Happiness”.
Our employees are the face of my store, Cannabis Central of Ellensburg. They are very valuable and are largely responsible for the atmosphere and energy level that exists in my shop. Throughout your hiring process, you need to ensure your would-be employees are able to buy into your design and carry the culture you wish to establish.
Designing a female-friendly dispensary
One aspect of dispensary design that many retail storefronts get wrong is alienating their female demographic. Cannabis, in the past, was definitely a more male-dominated market, but this is changing. So, you need to make sure that when you are designing your dispensary, you aren’t doing little things that make women feel uncomfortable or out of place when they come in to shop with you. Certain things I see dispensaries doing wrong when it comes to this aspect of design are having a dark, grungy environment, with predominantly male employees, showing off their tattoos, and wearing tank tops.
Instead, focus on bringing out vibrant colors, and maintaining positive energy in your dispensary. You can do things outside of design that make women enjoy your establishment more. Most importantly, hire plenty of women so that your customers don’t feel alone. You can learn more about female-friendly cannabis stores here.
Hiring a dispensary design company
If you are struggling with building out your retail cannabis store, or simply don’t have the time or know-how to get started, you have a few options.
One common method is to completely outsource the design and build-out of your store to a contractor. There are tons of companies that specialize in designing dispensaries. If you have tons of cash to invest, and not a lot of time, this may be a good option. But, here is the main problem with these stores: they all look the same!
Sure, you’ll end up with a cool, modern dispensary design that works, but one of the best parts about designing a dispensary is making it your own. I also believe a lot of these companies get it wrong and miss important factors that they just can’t know because they don’t run their own retail cannabis shop. They don’t have boots on the ground, talking with customers every day about what they do and don’t like about your design.
Much more goes into making our little pot shop a home away from home for both our employees and customers. I am very proud of the overall feel of Cannabis Central. The employees are empowered and educated, which you can instill and/or train, but they all have empathy and genuine concern for people and their wants and needs. This is innate and is “in” these young people which is a mighty gift to our community, our customers, and to me as owner.
Dispensary design is something I have first-hand experience with. As the owner and operator of Cannabis Central, my shop in Washington state, I know what works. And, through trial and error, I know what doesn’t work.
Our dispensary design does an incredible job of providing an ideal customer experience, mitigates any risk of theft, and remains compliant in the state of Washington after 5 years of existence. When you look at the three factors we mentioned regarding dispensary design -- we check the boxes of all three.
This is an area of starting a cannabis business I am passionate about. I’d love to help you with your design, even if its just bouncing some ideas off each other.
If you have any questions about designing your dispensary, send me a message and I’ll give you some feedback on what you’re thinking, and some suggestions on how you can improve it. If you want to hear more about my experience with dispensary design, check out my YouTube video!
Finding reliable, high-quality cannabis vendors to supply your licensed dispensary is a crucial step in preparing your retail store for opening.
It is not as simple as reaching out to people you know that grow cannabis -- you are operating under a licensed dispensary, so you need to do things by the book. This will mean only doing business with licensed cannabis growers.
This process consists of plenty of research, vetting, and relationship building. We are going to share with you our experience sourcing products for our retail store, Cannabis Central. Watch the video below, and then read on for more information on dispensary vendors.
Understanding supply and demand of cannabis in your state
Finding cannabis vendors is not black and white across state lines -- the amount of effort you’ll need to put in greatly depends on the number of licensed growers in your state.
For example, in Washington, we had a huge shortage of product at first. There were hundreds of retail licenses and only 25 licensed growers! This may be the case in your state, or, it could be the opposite -- excess supply.
More often than not, the market levels itself out -- but since the government regulates the cannabis industry and awards licenses to growers, it is really up to them to fix supply/demand imbalances.
Nevertheless, things have changed. Nowadays, there are tons of licensed growers in Washington. The same is true of Oregon, where prices are plummeting due to a huge surplus of cannabis products. In the future, hopefully, cannabis can move across state lines and issues with supply/demand will become more scarce, but unfortunately, that doesn’t appear to be on the horizon just yet.
In Washington State where I am located, vertical integration is not allowed. That is to say, we have legally separated retail cannabis shops from the growers and processors. It’s a closed-loop system. By that, I mean only state-licensed retail shops can operate here and only licensed growers and/or processors can operate legally as well.
And one final point; as a retail cannabis shop owner, I may only purchase products wholesale from state-licensed wholesale producers. They may only sell their products to state-licensed retail shops. Bottom line? I cannot survive without them and they cannot survive without me. We sink or swim together.
Creating A Fruitful Relationship With Cannabis Vendors: An Example From Washington State
That being said, however, growers, producers, and processors have had a very tough time and survival has been challenging to say the least. Competition has been vicious. I have been very fortunate to be on the retail side of the cannabis industry equation. I, therefore, feel a strong sense of responsibility to the growers, producers, and processors.
By extension, I feel a sense of responsibility to the entire cannabis industry here in my home state. Let me explain. There are two sides to this story from my viewpoint; the human side and the industry side. I’ll start with the human side.
When we first opened in August 2014, it was a wholesaler market. There was a dramatic shortage of product and some wholesalers took advantage of this market situation, but more on that another time.
However, by November of that same year, producers were really beginning to hit their collective stride and soon, especially when the outdoor crop hit the markets, the undersupplied market flipped to one of oversupply. Over the next several months and during much of the 2015 calendar year, prices dropped, products became more readily available and the variety and quality of products improved exponentially.
Unfortunately, many growers and producers were unable to stay up and running for many months. Therefore, by the time they were able to begin delivering product, their business model and their resulting wholesale pricing structure was hopelessly out of touch with the actual market reality.
Many retailers were unkind to these businesses, many of which were family-owned, very small, and likely undercapitalized. Many retailers beat up and attempted to bully and humiliate these struggling startups. I took a different approach. I am fortunate to have a shop located next door to a fantastic family-owned diner.
I took many producers’ representative’s next door for coffee and conversation to attempt to gently break the news that their wholesale prices were not in line with the current reality, and that a trip back to their drawing board was necessary if the business was to have any chance of surviving.
I always attempted to be fair and informative. In many cases, people had put their lives on hold, cashed out 401Ks, borrowed from family, left primary jobs etc to get in this industry. I could not and will not ever be anything other than compassionate and understanding in working with any wholesale operation. This is the right thing to do and the right way to act and treat others.
But while I have my own reasons for treating my fellow man with dignity and respect at all times, there are other reasons to help each other. Competition among wholesalers and among retailers is good for consumers. Competition drives up quality and drives down prices, both good things for end-users.
Its basic rules of supply and demand and the crux of what is at least potentially good in the model of capitalism. But cutthroat competition drives out participants which can have, over time, negative effects on prices and/or quality. I know what you’re thinking; adapt or die, only the strong survive, etc. And I can honestly say, as an Economics major from Central Washington University, Class of ‘82, I get all that.
But we need many players so as to prevent the markets from being dictated and controlled by a few. This will have the opposite effect on prices and quality and selection I believe. In full disclosure, there are bad, inefficient businesses out there being mismanaged which need to go away.
I am not about propping up poorly run organizations, but what I want and what I plan to continue doing is to help those who are doggedly trying to improve and compete. I can only do so much but I plan to stay committed to doing what I can do. The entire industry will benefit by business owners helping others in the field.
In summary, let’s always attempt to be kind and helpful to others in our industry. The industry needs good people, good systems, well-executed plans of operation. We need to be efficient and management-driven, of course. And, at least in Washington State, its not a cliche’, in fact we truly do need each other for the benefit of one another.
How to find cannabis vendors for your dispensary
The process of finding licensed cannabis vendors for your dispensary is going to involve some digging.
In Washington, I was reaching out to cannabis vendors well before we had our license. I wanted to be very proactive, and get ahead of the curve so to speak. I started emailing, calling, and even sending mail to these vendors to start building relationships.
As you may already know, relationships are everything in this industry. Creating a relationship with your cannabis vendors will ensure long term success for both parties.
Introduce yourself, and get vendors familiar with your store. Do your due diligence in vetting your potential cannabis suppliers. Make sure the quality is where it needs to be, and make sure they are operating by the book as well.
Vetting your cannabis vendors
Finding cannabis vendors is one thing, but knowing how to work with them and vet them is another. There are a few things you should do with every vendor you talk to, including:
Verifying their vendor license is active and up to date
Discuss barcodes on products
Communicate your expectations for the relationship
Discuss variations of product
Discuss lead times, stock, and their ability to meet demands
While it may sound like a lot of dirty work, making sure you’ll have plenty of sources for inventory is important. And rest assured that eventually, as your store grows, vendors will start reaching out to you! These days, we get tons of vendors reaching out wanting to put their product on our shelves. Again, establishing relationships and spreading the word that you are opening will go a long way in attracting quality cannabis vendors.
Need help sourcing cannabis vendors for your dispensary?
If all of this sounds a little overwhelming, and you don’t know where to begin, let’s chat. Drop a comment below, or reach out to me with a message and I’ll respond asap.
I understand the dynamic between cannabis retailers and suppliers, and is part of the reason I started Cannabis Consulting Nationwide. There are things I had to learn the hard way that I can help you avoid, such as:
Knowing the differences between sourcing cannabis according to the time of the year
How to develop a system of reaching out to vendors
What your vetting process should look like
How to build authentic relationships with cannabis vendors early on
How to negotiate price with cannabis vendors
The most important takeaway here should be putting an emphasis on relationship building with other figures in the cannabis industry. There is room for everyone, and by getting to know the other players, we can all work to further the cannabis industry, while ensuring you have high quality product in your store at all times.
One of the first things you should do when starting out is find legal representation for your cannabis business.
If you see attorneys and lawyers as an expense, you need to shift your thinking. Consider the cost of getting hit with fines for improper documentation, or worse. Finding high quality legal representation can be the difference between your business sinking or floating. But, this is easier said than done.
Fortunately, we have been there, done that. Today, we are going to share our experience with legal representation, and explain why its a necessity.
Why your retail cannabis business needs legal representation from the start
We recommend having an attorney and accountant you can rely on from the start. Because cannabis is federally illegal, you cannot deduct much from your taxes. There are also intricacies in the paperwork you’ll likely overlook or be unaware of.
For example, according to IRS Code Section 280E, cannabis businesses are unable to deduct otherwise ordinary business expenses from gross income. This is because in the eyes of the IRS, income from a cannabis business is considered “trafficking”. Essentially, all you can deduct from your taxes is your cost of goods sold.
You really need legal representation right away so you can get started on the right foot, as opposed to trying to untangle the mess of your business down the road.
Hope for the best, prepare for the worst
Your attorney and lawyer can help keep you out of bad situations and make sure you are operating “by the book”. They can also come in handy should you ever get audited. This is important in any industry, but especially in the cannabis industry.
How to find legal representation for your cannabis business
If you are in a state new to legal cannabis, like most things, it will take some time for things to normalize. At first, you may have trouble finding good lawyers and accountants with experience in this industry.
Our advice is to seek out good attorneys and accountants in general first. Then, gauge their willingness to work with a business in the cannabis industry. Unfortunately, you may find that many are unwilling to help you out of fear. But, eventually, you’ll find the right legal representation for your cannabis business.
Our advice on legal representation for your cannabis business
If you are an entrepreneur, you likely prefer to be in control. Unfortunately, you are going to see that in this industry, that is not always possible.
It can be tough, but you need to check your ego at the curb. Go above and beyond when working with the government. Despite your feelings on government and business, you want to play nice. A good legal team can help you prepare the right documents, follow the right procedures, and stay on the government’s good side.
If you took one thing from this article, let it be this: find a good attorney and lawyer, and find them asap! This will help you sleep, and prevent unnecessary stress. Leave it to the experts.
What we have done for our business at Cannabis Central has worked incredibly. This is an area where things won’t vary much from state-to-state, since we are dealing with the federal government. If you want to learn more about how we went about this, reach out to me and I can help you do the same for your business.