5 Tips to Streamline Cannabis Business Inventory Management

Departments - Upfront | Quick Tips

Steps to reduce costs and make operations more efficient, all while increasing profitability.

October 26, 2022

Lincoln Crutchfield standing at the opening of Sweet Dirt's 5,000-square-foot warehouse in Eliot, Maine.
Photos courtesy of Sweet Dirt

Inventory management involves monitoring, controlling, organizing and distributing goods. For vertically integrated cannabis companies, inventory management extends beyond tracking and moving cannabis products to a host of other goods that are needed from seed to sale, from labels and trash bags to soil nutrients and live insects.

Inventory management is an important aspect of compliance, especially in the heavily regulated cannabis industry. Not often considered is the value good inventory practices have on improving profitability and driving efficiency. Here are five tips for how to optimize inventory management to reduce costs and streamline operations.

1. Invest in integrated tools and technology.

Beyond the mandatory tracking that most states require for cannabis products all along the supply chain, other essential cultivation items—such as material inputs for growing, packaging supplies, and paper and hard goods—must also be recorded. Invest in technologies and toolsets, like data visualizers and enterprise resource planning (ERP) software, that allow you to manage those non-cannabis materials and look holistically across all areas of the business.

2. Optimize inventory space.

Warehouse, retail, manufacturing and grow space are at a premium—and often limited. To maximize space:

  • Go vertical. Extend shelving up vertically and utilize pallets, bins and shrink wrap.
  • Explore creative storage options. At Sweet Dirt, we utilize 40-foot storage containers to store grow supplies such as cloth pots, trellises and other hardy goods that withstand Maine’s winters, freeing up space in our climate-controlled warehouse for more delicate soil additives and nutrients, packaging, and paper and hard goods.
  • Utilize first in, first out (FIFO) rotation. Keep product fresh and drive value for the consumer by placing the oldest products in the front of shelves with newer products in the back.
  • Plan for climate needs. Flow inventory through the warehouse depending on climate needs. For example, at Sweet Dirt, we must store fish emulsion, molasses and beneficial insects for our integrated pest management program at safe temperatures. The same applies to cannabis products in the manufacturing facilities and dispensaries.

3. Take stock (and document everything).

As the saying goes: “You cannot improve what you cannot measure.” Start by recording all goods and all related data—including any suggested use-by or expiration dates—to help your sales team accurately discount and incentivize to stay ahead of waste. While Sweet Dirt adds expiration dates and other key pieces of information to its ERP system, the team also likes using spreadsheets to record data. Leverage the tools you have and what works for you.

While time-consuming, enter merchandise data into your systems, and verify inventory levels manually. This is the only way to ensure compliance and accuracy and identify any shrinkage or other issues. At Sweet Dirt, a vertically integrated cannabis company based in Eliot, Maine, that operates medical and adult-use dispensaries, we’ve invested in count sheets and documentation that are easy to use and work well with the technology we employ. This has made inventory counting and reporting seamless for frontline workers across warehousing, manufacturing and retail.

4. Stop stockpiling.

Tying up capital and facility space with bloated inventory is costly. Leverage inventory, cultivation and manufacturing timelines to meet your needs just in time (JIT). Instead of putting capital on warehouse shelves, keep inventory levels tightly dialed in.

This also allows you to better negotiate with suppliers and discuss long-term needs, driving down unit economics (profitability on a per-unit basis) and improving gross margin all without tying up shelf space. Seek vendors willing to work with Periodic Automatic Replenishment (PAR) levels by extending volume discounts and then holding on to excess inventory until your business is ready to receive these goods, thereby freeing up space in your warehouse.

5. Centralize purchasing.

Rather than having individual offices or stores purchase and stockpile paper products, coffee and other supplies, Sweet Dirt’s warehouse team procures operational supplies at volume discount and distributes internally.

Lincoln Crutchfield is the director of transformation for Sweet Dirt.