Inventory management in the cannabis industry is a complex balancing act. Operators must juggle compliance requirements, product freshness, SKU assortment, and the risk of both overstocking and stockouts—all of which can lead to significant financial losses and cash flow challenges for both brands and retailers if not managed effectively.
“Inventory management is by far the largest pain point we see from our data in the industry,” says Ben Burstein of LeafLink, a leading cannabis wholesale and inventory solutions provider.
He notes that although the cannabis industry generates approximately $30 billion in annual sales, a significant amount is lost each year due to inventory mismanagement, primarily from overstocking.
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According to LeafLink’s data, the average cannabis retailer stocks approximately 100 to 120 days’ worth of product on their shelves. That’s more than four times the inventory turnover of a typical convenience store or smoke shop, which usually holds just 20 to 30 days of inventory.
“The only way to liquidate that inventory into cash is to discount it,” says Burstein. “And discounting is a major problem in the industry that we frequently discuss.”
On LeafLink, the average retail product is sold at a 13 percent discount, cutting directly into profit margins. “And that’s not even including the lost working capital and cost of capital implications that come with inventory mismanagement,” he adds.
“I understand that people are very price-conscious,” says Penelope Nam-Stephen, CEO of The Travel Agency dispensaries in New York City. “But within a dollar or two, it doesn’t always make a difference, and sometimes, even when it does, the market doesn’t grow.”
Nam-Stephen warns that aggressive price cuts don’t necessarily lead to higher revenue, just more units circulating with lower margins.
“The biggest key to maintaining healthy margins and running a sustainable business is resisting the urge to reduce prices too quickly. That’s what could lead to the downfall of this industry—the speed at which price compression sets in.”
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On the flip side, stockouts also contribute to significant revenue loss. LeafLink’s data indicates that approximately 15 percent of a dispensary’s customers drive more than 90 percent of sales, meaning that loyal, high-frequency buyers are crucial to retail success.
“If you don’t have the products your heavy consumers want, they’ll find them somewhere else,” Burstein warns. Based on case studies with LeafLink’s retail partners, stockouts account for an estimated 6 percent of lost sales, amounting to over $2 billion in missed revenue across the $30 billion market.
SKU Rationale = Increased Profits
When it comes to maximizing profitability, operators need to rethink SKU strategy. “You want to give good optionality to your customers, but the more SKUs you carry, the more it’s going to cost you,” warns Burstein of LeafLink. “It’s costly to manage highly diverse inventory.”
Nationally, the average dispensary stocks between 800 and 900 SKUs from about 100 different brands. That translates to an average of five to seven SKUs per brand, per store, an inventory management challenge that can quickly drain resources if not carefully optimized.
“One of the biggest components to managing a healthy business is inventory management,” says Nam-Stephen. Her advice to new store owners: start lean. “Make sure you’re covering all your end users’ preferred formats—flower, concentrates, vapes, edibles—but don’t overextend yourself and get stuck without a budget.”
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Nam-Stephen emphasizes the importance of staying agile by also capitalizing on seasonal trends.
“There are cycles in this business,” she explains, noting that demand for specific form factors shifts with the seasons, climate, and tourism patterns. “Our biggest tool as retailers is to be nimble.”
To maintain balance, Nam-Stephen recommends investing in high-margin, top-performing products while also offering enough variety to meet customer needs.
“SKU rationalization should be monitored constantly,” she says. “Use traditional KPIs—your top vendors, your top SKUs, the percentage of sales driven by your top movers versus your bottom—to figure out the optimal assortment. You’ll never get it 100 percent right. There will always be loss leaders, but it’s about managing the depth of inventory behind those SKUs.”
For brands, SKU discipline is just as critical. Burstein sees a clearer path to profitability for those who focus on one or two product types and execute them exceptionally well. He points to industry leaders like Wana, Wyld, Jeeter, and Stiiizy, who first established dominance in a single form factor before expanding into new categories.
“Establish your niche and get really specific about what you’re good at,” says Burstein. “Then use your brand equity to command better pricing.”
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Marianne Cursetjee, founder of Oregon-based craft brand Alibi, agrees.
“It’s easy for brands to get spread too thin across product types,” she says. “I believe it’s crucial to maintain a strong connection with the customer. If something naturally complements your existing lineup, it’s a smart addition. Otherwise, it can dilute your brand.”
Cursetjee shares that while Alibi once tested gummies and syrups, the products didn’t feel aligned with the brand’s identity. “We shelved the idea. It just didn’t fit,” she says.
Data Aggregation Remains a Major Pain Point
Burstein argues that retailers could see margin improvements even greater than the anticipated relief from 280E tax burdens if they had more robust data and analytics to work with.
“Operators need to be asking questions like: What should I buy? How much should I buy? At what price should I buy it? And at what price should I sell it?” he says.
Allie Carney, a New York City dispensary operations manager, echoes the sentiment.
“My biggest challenge is the lack of reporting I can generate from the various tools we use to manage the stores,” she says.
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Despite collecting valuable data, Carney explains that her team lacks access to the kind of aggregated reporting between software needed to drive smarter decisions. While she admits software platforms are working hard to make updates and streamline systems, “Whatever the inventory issues are, it comes down to your data,” she concludes.
One of the biggest challenges, Burstein notes, is a lack of real-time visibility into product movement across the supply chain. Brands often lack visibility into their product sales at retail, while retailers are uncertain about brand production timelines. This information gap makes it difficult for retailers to plan purchases efficiently and for brands to forecast demand or optimize production runs.
“Data is key to equipping both sides of the market,” he emphasizes. “Retailers need it to inform purchasing decisions, and brands need it to manage production and inventory cycles more strategically.”
Tackling inventory inefficiencies is an essential strategy for increasing profit margins for brands and retailers. From smarter SKU rationalization to better data aggregation and tighter vendor forecasting, those that focus on optimizing inventory management will be best positioned to thrive in an increasingly competitive marketplace.
*This article was submitted by a guest contributor. The author is solely responsible for the content.