Cannabis Inventory Audit Best Practices: A Complete Guide for Dispensaries
Conducting regular inventory audits is a critical part of cannabis retail management. Not only are audits essential for ensuring compliance with state regulations, but they also help identify discrepancies, prevent shrinkage, and optimize your overall inventory strategy.
In this guide, we’ll walk through the best practices for performing a cannabis inventory audit, ensuring accuracy, compliance, and operational efficiency.
Why Conduct a Cannabis Inventory Audit?
A cannabis inventory audit is designed to verify the accuracy of your inventory records, ensure compliance with state laws, and identify any areas for improvement in your inventory processes. Regular audits are vital for maintaining the integrity of your stock and preventing issues such as mislabeling, shrinkage, or damage.
Key Objectives of a Cannabis Inventory Audit:
Ensure compliance with state regulations and inventory requirements.
Verify accuracy of your recorded inventory against actual stock.
Prevent shrinkage or loss due to damage, theft, or mismanagement.
Ensure proper labeling and packaging to meet regulatory and customer standards.
Step 1: Establish Objectives for the Audit
Before starting your cannabis inventory audit, clearly define the objectives of the audit. These objectives will guide the entire process and help you measure the effectiveness of your inventory management.
Common Objectives Include:
Compliance: Ensure all inventory practices meet state and local cannabis regulations.
Accuracy: Verify that your inventory records match the physical stock.
Shrinkage prevention: Identify any potential theft, loss, or damage to products.
Proper labeling and packaging: Ensure all products are correctly labeled and compliant with cannabis packaging regulations.
By setting clear objectives, you can identify gaps in your current inventory processes and make improvements to ensure more effective management.
Step 2: Plan the Audit
Once your objectives are set, the next step is to plan the scope of your audit. Decide which locations and products will be audited, as well as the time frame for conducting the audit.
Key Planning Steps:
Determine the scope: Specify which locations or stock types will be included in the audit.
Schedule the audit: Plan to perform the audit after hours or on a weekend when no inventory is being moved. During the audit, inventory should be “frozen,” meaning no inbound or outbound stock movement occurs.
Assign responsibilities: Select the individuals who will perform the audit and assign specific duties. Ensure that auditors are trained in how to conduct an accurate count and verify inventory records.
Tip: Freeze Inventory Movement During Audits
To prevent discrepancies caused by ongoing sales or deliveries, make sure that your inventory is “frozen” during the audit. This ensures that your stock count accurately reflects what’s on hand at the time of the audit.
Step 3: Conduct Physical Counts
The core of any inventory audit is the physical count. This step involves manually counting each product on your shelves and comparing it to the quantities listed in your POS or inventory management system.
Best Practices for Physical Counts:
Perform regular physical counts: Set a schedule for full inventory counts or cycle counts to ensure consistency and accuracy. Cycle counts can be done more frequently to cover high-turnover items.
Ensure products are in the correct location: During the count, check that all products are properly placed on the correct stock shelves.
Document discrepancies: Note any discrepancies between recorded inventory and the physical count, and identify any damaged or mislabeled products.
Example: If your POS system shows 100 units of a certain product, but your physical count reveals only 95 units, document the discrepancy and investigate the cause.
Step 4: Reconcile the Inventory Count
After completing the physical count, the next step is to reconcile the inventory numbers. This involves comparing the quantities from your physical count to your recorded inventory levels and investigating any discrepancies.
Steps to Reconcile:
Compare actual counts to records: Identify any differences between the physical count and inventory records. These discrepancies may be due to theft, damage, or mislabeling.
Investigate discrepancies: Determine the cause of any inconsistencies. This could be due to human error during previous stock intakes, shrinkage, or system misentries.
Update inventory records: Once discrepancies are reconciled, update your inventory management system to reflect the accurate stock levels.
Step 5: Review Internal Controls
An inventory audit is also an opportunity to assess your internal controls around inventory management. Strong internal controls help prevent loss, theft, and mismanagement of cannabis products.
Internal Controls to Assess:
Separation of duties: Ensure that different team members are responsible for purchasing, receiving, and auditing inventory. This helps minimize the risk of fraud or errors.
Inventory access: Review who has access to inventory and consider limiting access to authorized personnel only.
Security measures: Ensure that proper security measures, such as video surveillance or restricted access, are in place to protect your cannabis stock.
Evaluating internal controls is critical for safeguarding your inventory and maintaining compliance with state regulations.
Step 6: Reporting and Follow-Up
After the audit is completed, prepare a final report summarizing the findings, including any discrepancies or areas of concern. This report should be shared with key stakeholders and used to address any issues discovered during the audit.
Final Reporting Steps:
Prepare a detailed report: Include the physical count results, any identified discrepancies, and recommendations for improvement.
Communicate findings: Share the audit report with management, compliance teams, and other relevant stakeholders.
Take corrective actions: Address any gaps identified during the audit, such as revising inventory procedures or strengthening internal controls.
Schedule follow-up audits: Regular audits ensure ongoing compliance and help maintain accurate inventory records over time.
Conclusion
Regular cannabis inventory audits are essential for maintaining compliance, preventing shrinkage, and improving the overall efficiency of your dispensary operations. By following these best practices—establishing clear objectives, conducting thorough physical counts, reconciling records, and reviewing internal controls—you can ensure that your inventory management processes are accurate and compliant.
With proper planning and execution, cannabis retailers can use audits as a powerful tool to enhance their operations and protect their bottom line.
Ready to optimize your cannabis inventory management? Implementing tools like FlyWheel’s cannabis inventory control software can streamline your audit process and keep your dispensary running smoothly.
Ready to get started? Reach out to us today 240logistics.com/contact
Schedule your FlyWheel Demo: 45min w/ Brian H. - VP of Sales
