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Inventory Management 101 for Cannabis Businesses

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August 10, 2018

Cannabis retailers, dispensaries, and cultivators each face a unique set of challenges related to inventory tracking. Cannabis businesses have inventory management needs that traditional systems often aren’t equipped to handle. Seed-to-sale tracking and inventory management directly impacts a cannabis business’ profitability and compliance with tax regulations. Therefore, it’s critical that a cannabis business master inventory tracking to be successful.

Some states, like California, have track-and-trace systems that follow all commercial cannabis and cannabis products from cultivation to sale. All licensed cannabis businesses in California are required to use CCTT (and the platform, Metrc) to report on their cannabis inventory. However, there are other parts of your cannabis business inventory that aren’t required to be recorded in Metrc: things like material inputs for growing or cannabis accessories will need separate records.

Inventory management is one of the biggest things investors look for when deciding whether or not to fund a cannabis business. Not only is it important for staying compliant with cannabis regulations, but inventory management can have a big impact on your bottom line. Here’s how to practice good inventory management to reduce costs, stay compliant, and run your business efficiently.

Measure and weigh every batch.

It sounds basic, but accurate measurement of your cannabis product is probably the most important step of inventory management. Every time you get new inventory, weigh each individual batch to know exactly how much of each strain or product is in your possession. Many cannabis retailers find it useful to have a scale that integrates with their POS system. By autofilling your product weight, you save time on data entry and prevent possible inventory shrinkage (or theft).

Even non-retailers should be taking inventory measurements throughout their business cycle. Cannabis producers or extractors work with lots of raw material: raw material that’s about as valuable as liquid gold. Use measurements to minimize waste throughout your process. Set up a system of checks to make sure the ratio of final product to raw material makes sense. Investors may ask you to demonstrate production controls, standardized measurements, and other inventory tracking techniques. Plus, this helps you minimize loss – and maximize profit.

Pre-package your cannabis stock.

A simple way for retailers to keep track of their inventory is by pre-packaging their cannabis product. Spend a few hours each week separating your cannabis flower into pre-weighed offerings. Not only will you be able to reduce loss and keep track of your inventory easily, but these promotions are a great way to drive sales. Pre-rolls are a great way to reduce transaction times and attract customers with different promotions. If you decide to pre-package cannabis product, make sure to follow our guidelines on California’s packaging and labeling regulations.

Audit your stock regularly.

Any business should do a full audit of their inventory every so often, even if you’re using an inventory management software. For cannabis businesses, we recommend ongoing spot-checks to get a sense of what products are moving regularly – and which products are turning into dead stock.

Ideally, you should try to make an inventory report daily. It can be difficult to keep up with an inventory audit, especially when serving customers, but at a minimum, you should do this once a week. When doing an inventory report, make sure the person taking stock is not the same person in control of your cash. This reduces the potential for fraud and theft. Fraud is easy when one person handles all the bookkeeping and inventory management functions. Separate things such as processing customer payments, managing petty cash, keeping track of inventory, and paying invoices into a few separate roles.

Use an inventory management software.

The easiest way to manage your inventory? Make it as automated as possible. A tool like Clover or Xero can integrate with inventory management software to tell you when supplies are low. Look for software that gives you real-time sales analytics and better data to help you run a tight ship. Use the data to plan ahead, from buying and selling at peak times to predicting when you’ll need to reorder. Low stock alerts can give you the lead time you need to make sure your customers don’t walk away empty-handed. Inventory management software can boost your profitability, decrease manual error, and help streamline your entire sales process. It’s a no-brainer.

Looking for more advice on how to run a smart – and compliant! – cannabis business? Talk to one of our experts at GreenGrowth CPAs.

Post Tags: Compliance, Business

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