Cannabis Inventory Management: Understanding Demand Planning & Forecasting

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You’re up and running as a new or established dispensary. You’ve got customers that come in regularly. You’ve got marketing that they respond to. The sky's the limit. 

How do you grow your business beyond the day-to-day? You plan for the future. 

Unfortunately, few of us have that crystal ball to help us see into the future and carry exactly what we need on-hand to be profitable and satisfy our customers, in perfect balance.

What’s worse is the trap all too many dispensaries fall into: overstocking.

It kills your bottom line.

That’s why effective cannabis demand planning and forecasting is crucial for retail dispensaries. 

The best way to avoid crippling your revenue is to plan for demand and forecast what you’ll need to serve your customers versus what suppliers can provide.

Before we get into the weeds on this subject, it's important to understand how demand planning and forecasting impact dispensary revenue and overall operations.

When you are not accurately forecasting demand, you are likely:

• Carrying too much low-velocity inventory that won't move out the door, effectively locking cash on your shelves and not being able to pay back your vendors.
• Losing revenue due to stockouts. This is when you could be selling more of the popular items your customers want, or have adequate substitutes, but are effectively out of stock until your next re-up.
• Both holding too much slow-moving inventory and not carrying enough high-velocity products, which is a terrible place to find yourself as a retail dispensary.

Inventory demand planning and forecasting is advanced level operations. If at any point you feel a little in over your head in this article, don't sweat it! 

Contact us at Happy Cabbage and we can get you on the right track with our dispensary purchasing software, Happy Buyers, that does all the heavy lifting for you.

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Why Demand Planning and Forecasting is Important

Accurate cannabis demand planning and forecasting ensures that you’re meeting customer demand by carrying the products they want in the quantities necessary to, ideally, never be out of stock for a popular SKU. As a result, you maximize your revenue generated by that specific product. 

A well-tuned store will move through inventory at a rate of every 14-days and that’s what we recommend aiming for in your inventory turnover.

At the very least, you want to have a good substitute or two on-hand for when you are out of stock due to supply constraints, seasonality, or other market factors that may be out of your control.

On the flip side, having visibility into what products your customers don’t respond to, or otherwise don’t buy, ensures that you avoid wasting money on those products that just tie up your capital. 

There is no point in having the widest selection if no one is buying half of your SKUs other than as a heavy discounting marketing play. In which case, you’re also tying up marketing dollars with campaigns that tell your customers about products they don’t want to buy.

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Where We See Dispensaries Fail at Forecasting

On average, we find $50,000 in slow or stagnant inventory after conducting a dispensary inventory audit. 

What does it mean?

These dispensaries are overstocking products that their customers don’t want. That’s a serious stack of cash to have just sitting on shelves. 

Additionally, these audits often surface data showing that dispensaries sell out of their most popular products on the front end of a purchasing cycle. That is to say, if the dispensary had made a larger purchase of those particular SKUs, they’d generate more revenue between orders from a supplier by having those specific products on-hand.

This is where our purchasing and inventory management software, Happy Buyers, really pays dividends for dispensaries. It surfaces all this information using real-time data from a dispensary POS system, allowing purchasing managers to make more informed decisions about what to buy, when, and in what quantities.

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The Risks of Inaccurate Demand Planning and Forecasting

Retail dispensaries in the cannabis industry that do not accurately forecast demand may butt against several risks and experience operational drawbacks. 

Here are some potential challenges they might face:

• Overstock or Stockouts: Without accurate demand forecasting, dispensaries risk either overstocking or understocking inventory. Overstocking ties up capital in unsold products and may lead to product expiration, while stockouts result in lost sales and dissatisfied customers.

• Wasted Resources: Overstocking due to poor demand planning can lead to wasted resources, including product spoilage, increased storage costs, and the need for discounts or promotions to clear excess inventory (which erode your margin on those products). Add to that all the wasted time accrued with intake of these products, shelving, advertising, and finally, disposal and you can begin to see why accurate demand planning and inventory forecasting are so important for dispensaries.

• Increased Holding Costs: Holding excess inventory incurs additional costs related to storage, insurance, and security. Without accurate demand forecasting, dispensaries may find themselves spending more on holding costs than necessary.

• Inefficient Supply Chain: In the absence of technology-driven forecasting, dispensaries may struggle to optimize their supply chain. This can lead to inefficiencies, such as delays in product replenishment, missed opportunities to negotiate favorable terms with suppliers, and increased transportation costs; not to mention losing product on shelves in the back behind boxes of too much inventory.

• Loss of Customer Trust: Inaccurate demand forecasting can result in inconsistent product availability. Customers who experience stockouts or are unable to find their preferred products may lose trust in the dispensary, leading to a negative impact on customer loyalty.

• Missed Opportunities for Growth: Dispensaries without accurate forecasting risk missing opportunities for growth, such as introducing new products or capitalizing on emerging market trends.

• Ineffective Marketing Strategies: Marketing isn't free. There are hard costs associated with any push to move aged inventory. In fact, it’s widely regarded as overhead across industries despite its effectiveness as part of your sales strategies. Without accurate demand data, dispensaries may struggle to develop and implement effective marketing. They may commit resources to promote products that are already in high demand (wasted effort) or fail to capitalize on marketing opportunities for products with untapped potential (opportunities hiding in plain sight).

• Inability to Adapt to Market Changes: The cannabis market is dynamic, with changes in consumer preferences, regulatory landscape, and competition. Dispensaries without technology-driven forecasting may struggle to adapt to these changes, putting them at a disadvantage compared to more agile competitors.

• Competitive Disadvantage: Competitors who invest in advanced technology for demand forecasting gain a competitive advantage. They can respond more quickly to market shifts, optimize their operations, and provide a better customer experience, potentially leading to the loss of market share for dispensaries that lag in technology adoption.

If you are already experiencing some of these obstacles and challenges, that’s your cue to rethink how you approach purchasing for your dispensary.

We go into detail on how to get started with dispensary demand planning and forecasting processes further down in this article. 

However, we want you to get stoked on what’s possible with better cannabis purchasing practices, so here are just some of the benefits of accurate demand planning for dispensaries.

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The Benefits of Accurate Demand Planning and Forecasting

Retail dispensaries that accurately forecast demand enjoy plenty of benefits. 

Among those are streamlined operations, getting customers the products they want without interruption, lower costs, increased revenue, and invaluable peace of mind knowing you’ve got your inventory management on lock.

Here’s what you stand to gain from accurate cannabis demand planning and forecasting.

• Accuracy

Well, duh. By analyzing historical sales data, dispensary-specific trends, and customers’ behavior, data-driven forecasting allows you to make more accurate predictions. 

Having accurate data minimizes the guesswork and gets rid of decisions made on “gut feeling”, which isn’t the best way to run a business.

• Agility

Yeah, it’s a buzzword but at least you don’t need to do any hamstring stretches before you put this benefit to use. Real-time data (from your POS) lets you see changes in demand patterns quickly and with clarity, far better than an end of week export. 

This agility is crucial for adjusting inventory levels as things are happening, rather than after the fact, which helps avoid stockouts and enables you to capitalize on emerging trends.

• Optimized Inventory Levels

With accurate forecasts, you end up carrying less dead weight in terms of inventory on-hand. You keep what you need to serve your customers’ preferences, with a little padding but not so much that it keeps you from spending towards growth. 

This minimizes the risk of overstocking, ensuring that capital is used as efficiently as possible and operational costs are kept to a minimum.

• Improved Supplier Relationships

So much of cannabis culture is relationship-based. When you can consistently share forecasts with suppliers, you are building that relationship through collaboration and strategy. This informs suppliers of your needs and better aligns production with retailer demand. The result is a commitment to supplier relationships, reduced lead times, and potentially more favorable terms on future orders.

Pro-tip: build a network of suppliers you can rely on. In the event one can’t deliver on a product, you’ll have a back-up to ensure continuity of your dispensary's supply chain.

• Strategic Pricing and Promotions

When you’ve got a good thing going, you need to know. Otherwise, how do you capitalize on it? Data-driven forecasting helps dispensaries identify peak demand periods, which leaves room to build strategies around pricing and promotions that maximize revenue during high-demand periods and minimizes excess inventory during slower times.

• Enhanced Customer Experience 

It can’t be overstated that when your customers depend on you for a good or service, you don’t want them to go without. Otherwise, they tend to find another source. Accurate forecasts ensure that dispensaries consistently have in-demand products available. 

This positively impacts customer satisfaction, loyalty, and overall experience, which all lead to repeat business.

• Cost Reduction 

By avoiding overstock situations, dispensaries reduce costs associated with excess inventory, storage, security, and potential product expiration. 

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Getting Started with Demand Planning and Forecasting

If any of these outcomes sounds like a benefit your dispensary could use, we’ll break down how to get started with better demand planning and forecasting in the next installment of our 3-part demand planning and forecasting series. 

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