Proper inventory management is crucial for any dispensary. U.S. state regulations are strict, and cannabis inventory has to be hand-delivered from the wholesale source—meaning these products must be sold on a lot-by-lot basis.
Poor inventory management strategies at your dispensary can lead to expensive, complicated problems that go completely unnoticed until regulators audit your retail license. If that happens, it can result in hefty fines or even license revocation As a dispensary owner, you have a clear incentive to take inventory seriously.
The good news is that efficient inventory management can improve profitability and streamline your daily operations. This helps drive growth while ensuring your dispensary is fully compliant at every turn.
Retailers in various industries use different inventory strategies to account for receiving products. Because the cannabis industry is still in its infancy, its unique nature makes the inventory management process an important issue for anyone running (or planning to run) a dispensary. Compliance issues like seed-to-sale traceability add an additional layer of complexity.
At its core, the cannabis dispensary is a retail environment. Retail managers can choose from a handful of foundational strategies. The four most common inventory management are First-in, First-out (FIFO), Last-in, First-out (LIFO), Just-in-Time (JIT), and ABC Analysis. Let's explore each of these more in-depth.
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. This may change over time, but it would likely require the establishment of a national cannabis industry, accompanied by federal-level cannabis legalization.
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:
Working overtime might seem like an admirable part of what Ben Horowitz calls “The Struggle,” 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 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 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.
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.
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.
Dispensary owners who implement sophisticated 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:
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 POS 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 comprehensive inventory capabilities and is suited to both small and larger-scale (including multi-location) dispensaries.
No matter what cannabis point of sale system you chose, it should streamline the 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.
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, but operators who implement robust systems that integrate POS, inventory, and regulatory compliance will enjoy long-term growth.
We won’t dive into too much detail about the POS buying process, but if you need a thorough resource, check out our Cannabis POS Buyer’s Guide, which discusses how to: