A Comprehensive Guide to Cannabis Inventory Management & Costing Methods
Rukli Distribution Is Your Partner in Cannabis Inventory Management
Efficient and compliant cannabis inventory management and costing methods are essential for maximizing business efficiency and adhering to state regulations. By implementing precise inventory practices, you can boost revenue for your dispensary and identify any inefficiencies in product pricing and costing strategies. This guide aims to provide you with the fundamental elements of cannabis inventory management, enabling you to plan or refine your inventory strategies effectively. Learn more about cannabis dispensary inventory management in California and get in touch with Rukli Distribution today for assistance.
Understanding Inventory Management
Inventory management in the cannabis industry entails monitoring and controlling sales, securing and organizing products, and fulfilling orders. It helps dispensaries keep track of sold, damaged, or returned items, leading to more efficient reordering processes, improved customer service, and streamlined compliance reporting.
The Importance of Inventory Management
Systematic and meticulous cannabis inventory management safeguards dispensaries from licensing fines or suspensions. Consequently, your dispensary’s inventory practices must be accurate, efficient, and scalable, adjusting as your business grows. Being understocked, overstocked, or having excessive assortments (such as an abundance of specific categories like vape carts or edibles) can have a negative impact on revenue potential. Implementing good inventory management practices enables dispensaries to consistently maintain optimal stock levels of highly desired products and accurately determine when to reorder without encountering any glitches.
Common Costing Models
Three commonly used costing models are FIFO (first in, first out), LIFO (last in, first out), and WAC (weighted average cost).
- FIFO: This model is particularly important for industries dealing with perishable goods. It prioritizes selling products that were purchased first, minimizing the risk of wastage due to products nearing expiration. FIFO holds significant importance for perishable cannabis products, necessitating the documentation of expiration dates and other freshness and quality considerations.
- LIFO: While some dispensaries use this model, most prefer FIFO to ensure the freshness of inventory. LIFO can result in products lingering in inventory and potentially expiring, leading to revenue loss. Without careful adherence to FIFO, products from earlier harvests may risk expiration as more recently harvested and packaged cannabis products are sold.
- WAC: This model calculates the weighted average cost by dividing the total cost of current inventory by the number of units sold. It strikes a balance between FIFO and LIFO, accounting for market price fluctuations and the secondary effects of cultivation issues and policy regulations.
Most cannabis accounting experts agree that the FIFO model minimizes product waste compared to LIFO. Therefore, implementing a FIFO or WAC model is more suitable for dispensaries.
Streamlining Cannabis Inventory Management & External Reporting Processes
While some dispensaries rely on manual inventory systems, utilizing software designed specifically for cannabis inventory practices ensures more accurate real-time record-keeping. When selecting software, choose one tailored to the cannabis industry, and consider integration with your point-of-sale system and/or state seed-to-sale tracking system. Integration reduces potential data entry errors and saves labor time associated with manual data input across multiple systems. Some dispensaries find it effective to regularly push sales reports to their state tracking systems on a daily or weekly basis, optimizing inventory and compliance reporting efforts.
Train Your Staff & Stay Updated on Inventory Management Practices
Ensure key staff members are well-trained on procedures and software programs, as their awareness of the inventory system’s relation to customer service and compliance reporting is crucial. Establish thorough processes for inventory status updates, proper product storage and organization, and a timely reordering system. Given the myriad factors influencing the cannabis industry, following best practices in inventory management is essential. Most successful dispensaries utilize software to support their activities, so research and select software programs that align with your operational needs. Implement standard operating procedures (SOPs) to guide staff on correct inventory procedures, allocate uninterrupted time for inventory counts, and consider utilizing cycle counts to manage inventory in manageable portions.
The Major Challenges of Dispensary Inventory Management
Establishing and maintaining an efficient inventory management system for your cannabis dispensary can be a demanding task, often leading to frustration. Here are some of the most significant challenges commonly faced by cannabis retail owners:
- Time Constraints – Business owners often find themselves short on time, struggling to complete all the necessary tasks in a day. This leaves little room for creating and maintaining comprehensive inventory management systems. To address this challenge, many cannabis business owners opt for turnkey technology solutions that automate the inventory management process as much as possible. Streamlining and optimizing inventory procedures not only saves time but also reduces the risk of fees, license suspensions, or cancellations while maximizing profits and minimizing costs.
- Compliant Recording and Reporting – Local governments have strict regulations regarding inventory tracking and reporting for cannabis businesses. Dispensaries are required to conduct regular inventory audits, physically counting the inventory in their stores and comparing it to the reported inventory in the state or provincial seed-to-sale tracking system. Any discrepancies must be promptly and accurately reported to comply with local government requirements. Failing to adhere to these regulations can result in financial penalties or even the loss of a license. Implementing a reliable cannabis inventory system can simplify the auditing process and alleviate the complexities of reporting.
- Data Security – Efforts put into maintaining inventory and storing records can be rendered useless if the data is vulnerable to theft or corruption. Local governments typically mandate the storage of data for extended periods, ranging from two to seven years. Failing to adequately protect retail data can lead to significant compliance issues in the long run. Setting up secure servers internally can be costly and time-consuming. To ensure data security and compliance, cannabis retailers often rely on trusted technology companies with a proven track record of safeguarding data.
- Transforming Inventory Data into Actionable Insights – Inventory management data holds valuable insights for improving business operations. However, translating raw numbers into meaningful reports can be a daunting task. Rather than manually analyzing data, cannabis business owners can leverage inventory management software that provides high-quality reports with actionable insights. This enables dispensaries to make informed decisions and optimize their inventory management strategies.
Choosing the Right Technology for Dispensary Inventory Management
When selecting a technology solution to streamline your dispensary inventory management, it’s crucial to partner with a provider that specializes in the cannabis industry. Consider the following features when evaluating your options:
- Integration with the Seed-to-Sale Tracking System – Ensure that the POS and inventory management system seamlessly integrates with your local government’s seed-to-sale tracking system. This integration eliminates manual reporting and formatting, saving time, reducing compliance risks, and ensuring accurate data submission.
- Hardware Integration – Verify that the chosen system can integrate with your existing or planned hardware, such as barcode scanners, computers, and tablets. Avoid manual data entry, which can be time-consuming and prone to errors, by selecting a solution that streamlines the process through hardware integration.
- Data Security and Redundancy – Data security is of utmost importance. Select a technology partner that offers robust server infrastructure and cloud-based services, ensuring your data is scalable, secure, and accessible whenever you need it. Prioritize providers with a strong reputation for data protection.
- Product Recall and Loss Tracking – Inventory losses due to damage, deterioration, or accidents are inevitable in the cannabis industry. Additionally, there is a risk of products being recalled by cultivators or manufacturers. Choose a POS and inventory management system that can track lost inventory and flag products subject to recall, enabling you to manage these situations effectively.
- Robust Reporting Capabilities – Your inventory management system should provide comprehensive reporting capabilities. Besides meeting the reporting requirements mandated by your local government, the system should offer additional insights into your business performance. Look for features like inventory turnover analysis, product performance tracking, lost sales monitoring, sell-through rate analysis, gross margin calculation, and shrinkage identification.
Inventory Management Solutions From Rukli Distribution
Dispensary inventory management is a serious business and can make or break your California cannabis company. There’s a lot of competition in the cannabis business, and having the right partner for an inventory management system will make all the difference. Rukli Distribution offers pick and pack services, order fulfillment, warehouse services, inventory planning, and more. Contact us today to get started.