Retail Cannabis Buyers' Balancing Act

Inventory management in retail cannabis is a balancing act.

Buyers have to understand a lot of moving parts when it comes to controlling cannabis inventory and purchasing their next round of stock.

That means finding ways to manage inventory efficiently while avoiding the pitfalls of making decisions on gut instinct, where assumptions could lead to tons of cash in overstocked items or missed sales from stockouts. 

This piece takes a look at the underlying issues facing cannabis inventory buyers, financial implications of getting it wrong vs. getting it right, as well as practical strategies to brave new heights without the fear of getting it wrong.

Understanding the Emotional Landscape of Inventory Management

One of the most significant challenges cannabis retailers face is the fear of running out of popular items.

This fear often leads buyers to overstock products to avoid customer disappointment. 

Retailers may think that by having a large quantity of popular items, they can prevent stockouts and satisfy customer demand. However, this approach can create a false sense of security and ultimately lead to overstocking slower-moving products.

The Emotional Impact

The emotional burden of potentially disappointing customers can cloud decision-making. 

When retailers focus too much on ensuring they never run out of certain products, they risk ignoring important data about what products are actually selling. This can lead to significant financial strain, as unsold inventory ties up cash that should be used elsewhere in the business.

The Data Behind Demand: The Need for Accurate Forecasting

To navigate the emotional landscape of inventory management effectively, retailers have to ground their decision-making in accurate data. 

Our data reveals that ~70% of cannabis products sell less than one unit per day, and 20% sell less than one unit every 14 days. This means that most products in a dispensary are not fast movers. Overestimating demand for these items can lead to overstocking and margin erosion.

When to Break with Tradition

Many retailers rely on spreadsheets built on historical sales data to forecast demand. That typically comes direct from your POS. However, these spreadsheets often have formula assumptions that can miscalculate inventory needs, especially when trying to account for out-of-stocks. This can create a cycle where retailers overstock certain items while neglecting to monitor slower-moving products, making matters worse.

‍The Financial Implications of Overstocking

Overstocking is a much bigger financial strain than stockouts for most cannabis retailers. On average, stores carry 52 days of supply, with some that have large wholesale and reciprocity agreements holding over 100 days of supply. Excess inventory can lead to several financial issues, like:

• Inventory Debt: Money tied up in unsold products can strain cash flow and limit a retailer's ability to invest in new stock.
• Rising Working Capital: Maintaining high levels of inventory requires more working capital, which could be better invested in other operational needs.
• Frequent Discounts: Overstock often leads to the need for discounts to move products off the shelves, eroding profit margins.

While stockouts may result in lost sales, the immediate financial impact of overstocking can be more severe in the long run, creating a bigger burden on retailers.

‍

‍

Identifying the Fast Movers vs. Slow Movers

Understanding product velocity is critical for effective inventory management. While buyers often have a solid grasp of fast-moving products, they may overestimate the velocity of certain items while neglecting slower-moving stock.

The Need for Visibility

Few retailers can quickly identify what hasn't sold in the last week, leading to the unnecessary build-up of underperforming items. 

By implementing better inventory tracking systems and conducting regular sales reviews, retailers can gain greater visibility into their inventory performance. This will enable them to make more informed decisions when it comes to what to reorder and what to phase out.

Strategies for Balancing Inventory Levels

Balancing inventory levels requires a thoughtful approach that combines emotional intelligence with data-driven strategies. Below are several actionable solutions for cannabis retailers.

• Implement Data-Driven Inventory Management Systems: Invest in inventory management software designed specifically for the cannabis industry. These systems can provide real-time data on sales trends, stock levels, and demand forecasting, allowing for more informed decision-making.
• Regular Stock Reviews: Schedule regular reviews of inventory levels and sales data to identify trends, spot slow movers, and adjust stock levels accordingly. Use metrics like inventory turnover and lookback periods to guide your decisions.
• Demand Forecasting Techniques: Employ advanced demand forecasting methods that take into account various factors, such as seasonality, local events, and market trends. This can help predict future demand more accurately and adjust purchasing accordingly.
• Support a Culture of Informed Decision-Making: Encourage your inventory and purchasing managers to rely on data rather than solely on gut feelings or emotional responses. Training on data analysis and inventory management best practices can help build confidence in their decision-making.

Finding Sure Footing

Navigating the complexities of inventory management in retail cannabis is for sure a balancing act. By understanding the emotional factors that influence inventory decisions, grounding practices in accurate data, and implementing effective strategies, retailers can reduce the risks of overstocking and stockouts. This means more high-margin sales and more cash to work with when growing the business.

As the industry continues to evolve, embracing smarter inventory management practices will not only improve profitability but also increase customer satisfaction to position retailers for long-term success.

Ready to take your inventory management to the next level? Hit us up for a demo of the only tool in the industry built specifically for retail cannabis buyers. Your customers—and your bottom line—will thank you!

‍