Tips for Managing Cash Flow and Inventory Across the NY Cannabis Supply Chain

Tight margins, regulatory and compliance mandates, and the rigors of the highly competitive New York cannabis market challenge operators on a daily basis. 

How you handle inventory across the supply chain can be a mitigating factor, as every decision affects the bottom line. 

Inventory decisions can make or break your cash flow, and it’s not just about the products you bring in. Better procurement, inventory optimization, understanding purchasing patterns, and optimizing margins can keep product moving and ensure consistent cash flow over time. 

While industry compliance is focused on seed-to-sale, a sale-to-seed mindset might serve you better. Leveraging data from your point of sale (POS) and analyzing supply chain costs can be the key to maximizing cash flow and profits. 

Here are a few tips to get you started. 

Leverage POS data

Your point-of-sale data is an excellent source of intel to help you understand sales patterns and margins. It will reveal your top-selling products, highlight what’s not moving, and indicate which products bring the most value from a margin standpoint. 

Why this is important: if one or two products are bringing in most of your money, it makes sense to focus your efforts on those products and perhaps drop some of the poor performers. Holding on to inventory that’s not moving ties up cash flow unnecessarily—while you may think it’s an awesome product, your customers disagree, and they’re the ones you depend on for your livelihood. 

In your analysis, you may notice that some fast-selling products have a lower margin. Your optimization strategy could include adjusting retail prices or negotiating a better deal from your supplier. 

You might also choose to deprioritize marketing for low-margin products and re-focus on those that make you more money, essentially helping to move more product with faster sell-through. 

If you have high-volume-low-margin products, dig deeper to find out why. Maybe there was a special promotion or discount that boosted sales during a period. Your POS data can help you determine whether such promotions are working in your favor. More importantly, did the product continue to sell when it went back to market value? 

When analyzing your POS data, look beyond sales to determine peak purchasing times, seasonal trends, and overall customer preferences. Slow-moving products can be discounted or eliminated from inventory. 

Practice demand forecasting

Demand forecasting uses a combination of market trends, customer behavior, and historical sales data. You might, for example, notice an industry-wide trend towards edibles, infused vapes, or items that tend to be more popular in certain seasons.

For instance, say edible sales spike near the holidays. To avoid stockouts, plan procurement and purchasing to meet the demand. Forecasting should give you a reasonably accurate picture of what you need to satisfy your customers and help you avoid tying up inventory with slow movers, which will lead to negative cash flow. 

Make or buy?

If you’re a vertically integrated business (meaning you cultivate or manufacture as well as sell retail cannabis), drill down on the cost of producing vs. purchasing. In some cases, it might be more economical to create a product in-house vs. purchasing from another supplier—or vice versa. 

These decisions should be made based on a detailed analysis of production costs, lead times, quality, and capacity. If you are considering outsourcing, run a risk analysis to ensure the decision is sustainable. Supply chain disruptions and quality control are just a couple of things that could affect profitability. 

Just-in-time inventory

Just-in-time (JIT) is a tried-and-true retail strategy that helps to optimize inventory and improve cash flow. By implementing JIT, you ensure you are not holding excess inventory and freeing up cash. Other benefits of JIT include fresher product, reduced carrying costs, and inventory that’s ultimately easier to manage. 

The challenge of JIT is that you would need to closely coordinate with your suppliers to ensure an uninterrupted supply. You would also need a way to track your inventory in real-time, which can be managed in BioTrack or other seed-to-sale systems. 

To ensure accuracy, audit your seed-to-sale system, POS, and physical inventory regularly. Leverage your POS data and demand forecasting to optimize inventory levels, and work with suppliers you trust to deliver quickly and consistently. 

Technology is your friend

Gaining efficiency in inventory management and cash flow would not be possible without the right technology. 

You’ll need a cannabis-specific POS system, inventory management software, and an accounting platform with advanced analytics tools to access the insights you’ll need to make accurate decisions. 

Inventory software can help you track stock levels, and many solutions enable automated reordering or at least send alerts when stock is low, reducing the procurement workload and ensuring priority products are always in stock. 

The POS system will collect sales data and integrate with inventory management software to provide you with a single source of truth for the entire business. Analytic systems will leverage integrated data to help you forecast demand, highlight industry trends, optimize stock levels, and improve purchasing decisions. 

The Bottom Line: Improve Inventory Management, Improve Cash Flow 

Optimizing inventory management is one of the most reliable ways to improve cash flow sustainably. Though it may take some effort initially—implementing the right software, doing cost analysis, demand forecasting, and cutting more favorable deals with suppliers—the results will be well worth it. 

With the right tools and systems in place, cannabis operators in New York will be better able to navigate the financial and regulatory challenges inherent in the cannabis industry. You’ll come out the other side with crystal-clear visibility into your business and what makes it tick, and you will be better able to serve your customers with the products and pricing they want. 

At Growise, we understand the difficulty of running a profitable cannabis business in a fraught regulatory environment. Our cannabis CPAs, bookkeepers, and fractional CFOs are here to provide the insights and strategies you need to succeed. Set up a call today, and let’s talk about growth!