Cannabis inventory management is the process of organizing and managing stock throughout a dispensary's supply chain.

The goal of inventory management for dispensaries is to minimize the cost of holding inventory, while keeping stock levels consistent and getting products into consumers’ hands faster. Inventory management is the heart of a successful cannabis business.

Not sure where to get started with inventory management? This guide will walk you through the leading inventory management techniques and tips for managing stock and keeping your customers happy. We'll cover:

• What is cannabis inventory management?
• Why is inventory management important for dispensaries?
• Popular inventory management strategies
• Common inventory management obstacles faced by retailers
• How to optimize your inventory management workflows

What is cannabis inventory management?

Inventory management is the process you use to order, store, organize, and move stock through your dispensary's supply chain.

It ensures you have the right amount of product in the right place at the right time.

The goal of inventory management for dispensaries is to minimize the cost of holding inventory by helping you know when it’s time to replenish your cannabis products. This helps you maintain optimal inventory levels and minimize costs.

Why is inventory management important for dispensaries?

Staying on top of your inventory is crucial for any cannabis dispensary.

State regulations are strict and cannabis inventory has to be hand-delivered from the wholesale source, which means these products need to be sold on a lot-by-lot basis.

Bad dispensary inventory management strategies 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.

Common inventory management strategies

Retailers in various industries use different inventory strategies to account for receiving products.

Because the industry is still in its infancy, the unique nature of the cannabis industry makes the inventory management process an important issue for anyone running (or planning to run) a cannabis dispensary.

At its core, a dispensary is a retail shop. 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 the frequency of their sales. 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—but this can vary based on the state you're 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 cannabis 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:

1. Time

Working overtime might seem like admirable, but 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 example, if you're in a state where a seed-to-sale traceability software is in place, you'll need a Compliance Officer or Inventory Manager to manage your inventory, both in your cannabis POS and your traceability system.

If a dispensary relies on manual data entry to input incoming inventory and inputs 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.

How to optimize inventory management at your dispensary

Put simply, the key is having the right technology in place.

Dispensary owners who implement sophisticated cannabis point of sale (POS) 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:

• Weight-based audits
• Unit-based audits

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 buds, which have to be weighed, notated, and entered into the system. The unit-based approach applies to edibles and other pre-packaged 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 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.

Dutchie POS offers inventory tooling as well and is catered to larger-scale or multi-location dispensaries.

• These solutions allow operators to audit inventory by Rooms, Category, and Master Category, allowing for increased efficiency across larger scale retailers and deeper insights across product categories.
• Auditing can be run in several modes (Manual, Upload, and Scan) to save owners time and provide flexibility based on need.

No matter what POS system you chose, it should be streamlining the cannabis inventory experience for you. Daily randomized audits can help keep track of inventory levels and appropriate SKUs ahead of time. Other audit techniques can help with theft security for cannabis businesses. Various types of inventory tooling are available to help ensure the process goes smoothly every step of the way.

Succeeding at inventory management, together

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.

About Dutchie

Dutchie is a complete technology platform for cannabis retailers. With solutions for point of sale, payments, ecommerce, insurance, and more, Dutchie empowers dispensaries to run efficiently, scale their operations, stay compliant, and provide exceptional experiences to staff and customers alike.

And since Dutchie’s solutions are seamlessly connected, it’s easy to manage a business from one central hub and ensure all operations stay in sync.

Request a demo today.

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