Top Inventory Metrics to Maximize Cannabis Dispensary Profits

Medical marijuana legalization is gaining popularity in many countries across the world. With this acceptance, comes a new industry that is growing fast. According to analyst reports, the global cannabis industry may be worth as much as $27 billion by 2027. The recreational and medical use of cannabis is a driving force in this surprising growth. Analysts project that North America will hold about 80 percent of this market share. 

Distributors, dispensaries, farmers, and growers are benefitting from the burgeoning cannabis trade. To capitalize and sustain this expansion, it is important for businesses, especially cannabis retailers and dispensaries, to leverage key technologies. Here are some insights on how to run a successful medical cannabis dispensary. 

A Good POS System to Help Maximize Your Profits 

If you run a cannabis dispensary or business and want to grow your business, point of sale software is one technology to consider using. The best point of sale software should suit your specific needs and eliminate the pressure points of running your business. It should have features such as:

  • Integrated online ordering
  • Product details
  • Customer queue
  • Customer favorites and profile
  • Franchise dashboard
  • Integrated loyalty
  • Debit payments
  • Customer purchase history
  • Customer discounts and more.

A good point of sale system should capture leads, manage customer data, and respond to customer queries and requests. However, you need to understand that the legalized marijuana industry is always evolving. Therefore, the system you choose should have more than the basic functionalities. 

POS systems are an invaluable tool for building customer loyalty and marketing businesses. As a cannabis retailer or dispensary, you know that your best customers are repeat customers. A good POS system can help you nurture or develop customer relationships effectively. 

Important Considerations

The dollar value you generate divided by the dollar cost is your return on investment. If you run a cannabis dispensary, you can generate dollar value in two main ways. You can make more money by growing gross margins and increasing total revenues. You can also do it by minimizing people costs and decreasing inventory costs. 

Using the right tools when stocking your cannabis products is important. Stock at the right time and in the right quantities to maximize your profits. When running a successful cannabis business, or any other type of business, you should know the most important metrics to help you make the best stocking decisions. 

What Is Inventory?

For legalized marijuana dispensaries, managing inventory effectively should be a top priority. Knowing how much inventory you have on hand, where it is, and when you need to reorder is extremely important. It will help you provide excellent customer service and compete in a competitive and crowded industry. 

Inventory refers to the merchandise, products, materials, or goods held by a business to earn a profit from sales. In the cannabis dispensary setting, inventory includes cannabis products, branded merchandise, and accessories.

You need to understand that inventory makes up a huge portion of a cannabis dispensary’s expenses. Therefore, you need to manage your inventory properly to remain profitable, which is why a fully integrated POS system can come in handy. Such a system will also help you wow your customers, grow revenue, and be compliant.

Compliance, in particular, is one of the major concerns for cannabis businesses. Use the right technology and tools. Eliminate manual work and simplify processes. Organize your inventory using a simple system.

Importance of Inventory Management for Cannabis Dispensaries

Inventory management is part of your business. It involves supply chain management, overseeing, and controlling purchases. This applies to both customers and vendors. It also includes organizing and storing your products. Fulfilling orders and controlling the number of cannabis products for sale is also part of inventory management.  

When compared to most traditional retail businesses, cannabis inventory management has many nuances. Strict regulations dictate the way marijuana dispensaries display, sell, purchase, and store products. Most legal cannabis states require that dispensaries have a state traceability system. Simply put, it is critical to take inventory management at your dispensary seriously. 

A typical cannabis dispensary can have hundreds or even thousands of products, which are quite difficult to manage. Many dispensaries lose money by stocking too many units of the wrong products. One of the most effective and fastest ways to maximize your operation’s cash flow is to plan your purchases and inventory well.

Understanding your slow-moving products and best-selling products is a good place to start. However, inventory management means much more. You will also need to consider your product saturation, pricing matrix, future buying needs, and days to stockout. A good inventory management system will give you all the reports and information you need in an intuitive and simple format. 

This will help you order the right products in the right quantities and at the ideal time. When you use the right system to help you manage your purchases, inventory, and sales, it will help you save a huge amount of time and money. It will also save you from a lot of frustration and confusion. 

Top Inventory Metrics to Help Increase Your Profits

At the end of the day, the sale of cannabis follows the same principles as other types of retail businesses. Therefore, the same inventory metrics that apply in traditional retail businesses can guide cannabis dispensaries. The main goal is to increase revenues and reduce costs. 

As a cannabis business owner, one of your main goals should be to have the right quantity of products available to your customers. Achieving that ideal inventory sweet spot can be quite difficult. You can maximize your sales by monitoring and maintaining the right inventory metrics. Some of the top inventory metrics for cannabis dispensaries include:

Product Performance

As a cannabis retailer, you need to keep careful track of your lowest and highest performing cannabis products. This will help you maximize your profits. Understanding your product performance should also help you maximize other inventory metrics. It is important to track every product so that you can tell how well it is doing. 

Unlike inventory turnover, product performance is something you should monitor weekly. This will help you identify the products that are not selling and those that you need to keep on hand at all times. This information will help you craft strategic promotions and advertisements to keep the sale of high-performing products up and cycle through idle inventory. 

Inventory Turnover

The stock turn will help you determine the number of times you went through your entire inventory in a given period. This is an important inventory metric. It helps you determine how efficient your dispensary’s inventory management system is. You should calculate this metric yearly. 

To determine the turnover rate of your inventory, you need to divide your cost of goods sold by your average price of inventory. If your annual cost of goods sold is $2 million, for example, and your average inventory is $200,000, then your inventory turnover is 10. This means that you sold your entire cannabis product inventory 10 times in one year. 

The higher your inventory turnover, generally speaking, the better your business is doing. A high inventory turnover score means that you do not have idle inventory sitting in your store for long periods. 

Category Performance

It is important to know your best and least-performing products. In the same way, you should have a good understanding of product category performance. Maybe your CBD products fly off the shelf, or you cannot seem to stock enough pre-rolls. Perhaps there is a significant increase in sales of cannabis beverages in a certain season. Whatever the case, it is important to know how different cannabis categories perform. This will help you make smarter inventory planning and management decisions. 

Sell-through Rate

Your cannabis dispensary’s sell-through rate will help you understand the percentage of products you sell. This is in relation to the number of products available for sale. You calculate the sell-through rate by dividing the number of cannabis products you sell by the opening inventory number multiplied by 100.

If you had 200 units of a particular cannabis product and sold 40, your sell-through rate would be 40 divided by 200 times 100. It amounts to 20 percent. Calculate the sell-through rate of your entire inventory or of individual products. It helps you to understand different aspects of your dispensary’s performance. 

Lost Sales

Once you have a good understanding of your product performance, you will be able to track lost sales more effectively. This will help you determine how much money you are losing out on when high-performing products run out of stock. To calculate this inventory metric, simply multiply the number of days a certain stock-keeping unit is out of stock by its average rate of sale. 


This inventory metric will help you identify or determine whether there are instances of fraud and theft. It applies to both external or internal fraud. It will also help you identify potential administrative errors. It is the difference between the inventory you have on paper and the physical inventory you are holding. 

To calculate this metric, subtract the value of your present inventory from the value of your closing inventory. You want the percentage of your shrinkage to be as low as possible. Once you determine how much product you are losing, you can then start to monitor employee and customer activity more closely to find out the cause. 

Gross Margin

This inventory metric refers to the percentage of cannabis sales revenue you retain after your cost of goods sold. To determine your dispensary’s gross margin, you need to subtract the cost of goods sold from your total sales revenue. You should then divide the result from the total sales revenue, which will give you the percentage of gross margin. 

A high gross margin percentage means that you are keeping more of every sales dollar, which is the gross profit. If you have a gross margin of 30 percent, for example, it means that you keep $0.30 of every revenue dollar. You spend the remaining $0.70 on the cost of goods sold. 

It is important to track this inventory metric to have a clear idea of how much revenue you are earning to spend on other operational costs. In the example above, that would be 30 cents. Determining your quarterly gross margin should help keep you focused on strategic ways to increase it.

Monitoring Cannabis Retail Metrics

Your cannabis dispensary point-of-sale, whether it is a standard or pocket POS, is a powerful tool. It helps you to track important business metrics, from inventory to sales. A point-of-sale system that provides a robust and comprehensive suite of reports can help you optimize your gross margin. It helps you to calculate the sell-through and inventory turnover percentages. It will also help you identify shrinkage and reduce lost sales.

Medical marijuana is a developing market. This does not mean that you should throw best business practices out the door in favor of profits and rapid growth. Tracking key performance indicators and inventory metrics are essential for the business to run profitably. You should not sit back and hope that things will work themselves out. This will cause inventory and cash flow issues, which will lead to a fast exit from this competitive but thriving industry.

Final Thoughts

Most people think cannabis dispensaries are tremendously profitable. They believe that all you need to do is grow a few cannabis plants and you will be printing cash. The cannabis retail business faces tons of challenges that other conventional retail businesses do not. There are many restrictions on inventory and advertising on a product that is still not technically legal. 

Nowadays, cannabis consumers have tons of options when it comes to where to shop. Therefore, if you fail to optimize your business for success, you will lose business faster than it would take you to light a joint. One of the most important things you need to do to optimize your operation is to monitor your inventory using the metrics discussed above.