Effective cannabis inventory management and costing methods will increase your business efficiency and help you remain compliant with state regulations. Precise inventory practices can help increase revenue for your dispensary and identify inefficiencies in product pricing and costing methods.

This article will explain the basic elements of cannabis inventory management so that you can plan or refine your inventory strategies.

What is Inventory Management?

Guide to Cannabis Inventory Management & Costing Methods

Cannabis inventory management involves monitoring and controlling sales, securing and organizing products, and fulfilling orders. It helps a dispensary track sold, damaged, or returned items. Careful inventory management will lead to more efficient reordering processes, customer service, and compliance reporting.

Why is Inventory Management Important?

Guide to Cannabis Inventory Management & Costing Methods

Systematic and careful cannabis inventory management will help a dispensary avoid licensing fines or suspensions. Therefore, your cannabis dispensary’s inventory practices must be accurate, efficient, and scalable. Scaling up your procedures requires adapting inventory practices as your dispensary grows.

Being understocked, overstocked, or over assorted (having too many products in a specific category such as vape arts or edibles) can negatively impact revenue potential. Good inventory management helps a dispensary consistently maintain specific amounts of a highly desired product in stock and know when to reorder without any glitches.  

Some Common Costing Models

Guide to Cannabis Inventory Management & Costing Methods

Three commonly used costing models include FIFO (first in-first out), LIFO (last in, first out), and WAC (weighted average cost).

FIFO – This is important in an industry with perishable goods. The FIFO model means good business practice is that a dispensary sells first the goods that it first purchased, thus reducing potential waste of products closer to expiration. FIFO is especially critical for perishable products like cannabis flowers, so it is crucial to document product expiration dates and other freshness and quality concerns.

LIFO – This model results in products lingering in inventory and potentially expiring, which increases chances of revenue loss. Although some dispensaries use this model, most dispensaries prefer the FIFO model in order to ensure product inventory is fresh. For example, a drawback of a LIFO model is that more recently harvested and packaged cannabis products would be sold before products from earlier harvests; if a dispensary is not carefully using FIFO, some products risk expiration.

WAC – It can be calculated by dividing the total cost of current inventory divided by the number of units sold. This approach provides a happy medium between FIFO and LIFO. It also allows for market fluctuations in price and secondary effects of cultivation issues and policy regulations.

Most cannabis accounting experts would agree that the FIFO model results in less product waste than the LIFO. Therefore, using a FIFO or WAC model is more suitable for dispensaries.

How to Streamline your Cannabis Inventory Management and External Reporting Processes

Guide to Cannabis Inventory Management & Costing Methods

Some dispensaries use a manual system for inventory, but using software designed for cannabis inventory practices will contribute to more accurate “real-time” record keeping. If you do select a software program, make sure it is one tailored for cannabis industry use. It is even better if you select a software program that will integrate with your point of sale system and/or the state seed-to-sale tracking system.

Integration of these programs will reduce potential data entry errors and labor time associated with manually inputting data into these multiple systems. Some dispensaries find it is effective to push out their sales reports to their state tracking systems on a daily or weekly basis, so coordinate inventory and compliance reporting plans in order to maximize time and effort.

Train Your Staff and Stay Current on Inventory Management Practices

Guide to Cannabis Inventory Management & Costing Methods

Make sure your key staff members are trained on any procedures and software programs. A dispensary team will perform better if they are aware of how your inventory system relates to customer service and compliance reporting. Make sure you have thorough processes regarding inventory status updates, proper product storage and organization, and a timely reordering system.

Given all the factors impacting the cannabis industry, it is important to follow best practices in inventory management. Most successful cannabis dispensaries utilize software to support their activities. In order to support your dispensary’s operations,  research software programs that will work best with your dispensary’s operational needs. Selecting the right tools will allow you to audit products regularly.

Create standard operating procedures (SOPs) that help staff understand how to conduct inventory correctly.  Allot uninterrupted time for inventory counts. Some dispensaries use cycle counts in which they focus on one portion of the whole inventory such as flowers, edibles, or concentrates once per week. This approach makes inventory more manageable.

Contact Paybotic for Cannabis Inventory Management Services

Guide to Cannabis Inventory Management & Costing Methods

Our team experts are happy to talk with you about how our cannabis payment processing solutions can support good inventory management practices. The Paybotic team is here to help make your cannabis dispensary a success!

If you have specific questions about how our debit card processing, ACH/eCheck, or other payment solutions might support your management and costing method efforts, please fill out a contact form or call us at 844-471-2078.



Post date: 9/23/2021
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