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Loss Prevention Tips: How to Reduce Shrinkage at Your Dispensary

9 January 2019  |  8 min read

loss prevention cannabis dispensary

Cannabis retailers must be proactive to maximize profits and stay competitive.

Great customer service, marketing, branding, and sales numbers can’t impact margins in the way they should if these efforts are thwarted by factors like inefficient operations, inventory loss, or theft. This post outlines some common ways cannabis dispensaries lose revenue, and how Flowhub is built to help prevent this shrinkage.

What is shrinkage?

Shrinkage is defined as inventory and revenue loss due to internal and external theft, vendor fraud, damage that occurs to inventory, or human errors in the customer’s favor.

According to the 2018 National Retail Security Survey (NRF), retail shrinkage and loss are most commonly attributed to shoplifting or employee theft in the United States.

source of inventory shrinkage 2018 retail
Source: 2018 National Retail Security Survey

To calculate your store’s retail shrink rate, first, take the book value of your total inventory and subtract the physical inventory value. To simplify, let’s say the book value of your inventory is $100 and your physical inventory value is $90. Divide the difference, $10 in this scenario, over the total book value to get your retail shrink rate. Our retail shrink rate, in this case, would equal 10%.

Like any other retail store, shrinkage can be a costly problem for your cannabis dispensary. In fact, the average shrink percentage in the retail industry is 1.3% of sales. While that may seem trivial, shrinkage costs add up over time—especially if your dispensary is generating hundreds of thousands in retail sales annually. Luckily, Flowhub is designed from the ground up with tools to help your retail business develop a holistic retail loss prevention plan.

Here’s a real example.

Within the first 90 days of switching to Flowhub point of sale, Nectar Cannabis reduced their total annual loss from 10% to 2%, allowing them to increase profit margins by 20%. The Oregon-based retailer has expanded their operation to more than 15 stores today. Here is a direct testimonial from the COO of Nectar Cannabis reflecting on how Flowhub has helped grow their business:

Upon our migration to Flowhub, we have been able to enhance margins by 20% by understanding the granular details of pricing, discounting and inventory management. The out of the box business rules for discounting in Flowhub have removed over-discounting practices. The visibility into consumer buying patterns has allowed us to better stock our stores. The granular inventory tracking tools have aided in moving inventory more quickly and with less spoilage.

How Flowhub reduces loss

Although external theft is most common, one of the biggest retail security concerns for dispensaries actually comes from the inside. Because budtenders deal with large amounts of cash and a product that’s tempting to pocket, it’s important to be diligent about tracking inventory, reviewing surveillance, limiting access, and establishing security measures that reduce merchandise theft.

Flowhub is not just a POS system for performing transactions. It’s a robust solution that provides real-time insight into where your business is bleeding, with several built-in features to stop employee theft and retail crime. Let’s go over some of the ways Flowhub can help round out a complete loss prevention strategy.

Monitoring employee actions with real-time activity feeds

real time activity feed

Flowhub’s activity feed is a real-time window to see all movements of your inventory, customer check-ins, inventory and sales adjustments, reports and special activities, as well as drawer and cash activities at all times. This gives your management staff a comprehensive record to refer back to if a question of theft arises.

Since every action and update made in Flowhub is recorded and reportable, you always have complete visibility into who, what, where, and when movements are happening. Because every activity is time-stamped, you can sync these movements with your security system to doubly verify your surveillance camera footage.

Limiting access with granular employee permissions

employee permissions

Another way to prevent internal shrinkage is by limiting access to your back of house operations.

Employee permissions cover every level of your employee hierarchy. However, locking down access for your budtenders and store-level employees is going to make the biggest impact on loss prevention.

For example, the “Apply Discounts in Cart” permission allows an employee to apply a discount during a transaction. If a budtender does not have this permission, they will be unable to give discounts without verification and permission from a manager. This prevents them from giving out unwarranted discounts to friends without approval.

Permissions also help reduce shrinkage from an inventory management perspective. It is a recommended best practice that there be a limited number of individuals responsible for moving inventory within your store. The “Manage Rooms” and “Manage Inventory” permissions are designed to allow your inventory management staff to implement strategies like the first-in-first-out method, which means that your oldest inventory gets sold before newer inventory. Without this permission, if a newer inventory item is in a not-for-sale room, your budtenders will not be able to move inventory to the sales floor willy-nilly. This safeguard allows your inventory manager to have eyes on what inventory needs to be sold first, reducing the risk for spoilage because products closest to their expiration date will always be sold first.

Reducing employee theft with dynamic drawers

dynamic cash drawers cannabis pos

In a cash-only industry like cannabis, it is important that you have the tools to monitor the physical cash flowing through your business and how it is being handled at all times. Flowhub’s dynamic drawers are designed to give your staff the visibility and accountability they need to make sure internal theft doesn’t go undetected.

In Flowhub’s cashier function, register drawers must be assigned to an employee in order to complete a transaction. Additionally, each transaction is tied to an employee pin number, so there is never a doubt of who was handling what cash—and when.

If there is ever a question of why the final balance in a register drawer may be off, management has the option of running a “Drawers Activity Report” which will tell you things like:

  • When a drawer was opened and closed
  • When cash drops or payouts were made
  • Who was assigned to what drawer
  • Beginning cash balances
  • The current amount of cash in a drawer

All of these data points can be used to investigate suspicious activity that might otherwise go unnoticed. For example, if one of your staff members is taking small cash payouts on a regular basis and then pocketing the money, management will be able to prove misconduct with this report.

Reducing inventory shrinkage with par levels

par level report

One way to reduce the expiration and spoilage of inventory before it can be sold is to make sure you set accurate par levels. Flowhub’s Par Level Report gives you the data to identify which products are typically unpopular and slow to move off your shelves. This allows you to make the best decisions on future purchase orders and minimize the risk of unsold product in your inventory system.

Making inventory audits & manager workflows easy with the NUG

Frequent inventory audits are key to identifying product loss and your retail shrink rate. It is recommended that at minimum, a weekly or bi-weekly inventory audit be conducted to make sure physical inventory matches what is logged in your point of sale. Beyond loss prevention, regular physical inventory counts are an essential part of auditing your Metrc account for discrepancies.

Make the process of counting your physical inventory much more efficient by scanning package tags and SKU’s easily with the NUG Mobile Audit App. Your team can also use the NUG to search your inventory for any product within Flowhub by category, room, or product name

cannabis inventory audit app

When your physical count does not match your inventory in Flowhub, the NUG Mobile Audit App allows you to correct those discrepancies right from the palm of your hand. When inventory audits are performed by employees without manager privileges, you can set up a workflow to send notifications of inventory changes for manager approval. This creates a standard procedure that increases the visibility and accountability in your inventory audit process.

Don’t just take our word for it. Diego Pellicer, a multi-location dispensary in Colorado, uses the NUG to save time and streamline inventory management.

Flowhub's NUG has significantly reduced the amount of time it takes to count inventory. We carry over 250 different SKU's at any given time. The NUG allows our employees to effectively manage their time when counting inventory at the end of the night, giving them more time to engage with customers and make sales!

Maximizing your profitability with Flowhub

Whether you have one location or an entire chain, your growth goals are our first priority. Flowhub’s core design is built with business intelligence in mind and allows you the data, insight, and tools to have total control over reaching those goals.

If you have questions that we didn’t answer here, call us at (844) FLOWHUB or email help@flowhub.com to set up a time with our support team.

If you’re interested in learning more about how Flowhub point of sale software can help your dispensary grow revenue and stay compliant, please request a demo here.

Alex Erin

Alex Erin Johnson

Marketing Coordinator at Flowhub

As Marketing Coordinator for Flowhub, Alex serves to help cannabis license holders grow their business with a compliance-focused and consultative approach. Alex joined Flowhub in 2016 to contribute her efforts to the larger mission of de-stigmatizing this revolutionary plant and helping make regulated cannabis accessible for everyone in need. Alex earned a BS in Business Administration and Marketing as well as a BA in Theatre Studies from the University of Northern Colorado. Drop a line and connect with her on LinkedIn.

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