Study: Retailers, Consumers Out of Sync on Cannabis Product Inventory

The modern retail cannabis store is a work in progress. Even in mature markets, it’s often a guessing game for general managers as they meet with new brands, evaluate new products, and decide how to allocate limited and valuable shelf and storage space. 

One of the most difficult aspects of cannabis product inventory management is trying to predict the buying behavior of cannabis consumers, who can be unpredictable and fickle. With frequent new product launches, limited education and marketing, and burgeoning brand loyalties, the situation isn’t likely to change anytime soon.

While retailers and their distribution and brand partners can make educated guesses based on recent sales, there’s no telling what customers will gravitate toward next in a fast-moving market. When retailers make bad buying decisions, the mistakes ripple down the supply chain and negatively impact distributors and manufacturers as well.

Common questions

Indeed, inventory management has become one of the most important skill sets for both distributors and retailers in an industry where product development and consumer trends are moving targets. Managing the flow of goods and making the right buying decisions can be a tricky proposition in both mature and emerging markets, involving the same questions every month:

Am I stocking the right products for both new and existing customers?How many different products can I stock without compromising the shopping experience?Which products are going to drive the most sales and revenue?How can I reduce the amount of capital tied up in inventory?Which new product categories are going to be popular?

Eye-opening data

The Seattle-based cannabis research and analytics firm Headset recently evaluated essential inventory and assortment metrics across seventeen recreational and medical markets in the United States and Canada. The key findings are disconcerting.

While there is significant variation across markets, the median North American cannabis store stocked about 400 distinct products over the previous 90 days.On average, across the U.S. and Canada, about 33 percent of products account for 80 percent of total sales. In Alberta, for example, 39 percent of top-selling products contributed to 80 percent of sales for the median retailer. In Oklahoma, 27 percent of products contributed to 80 percent of sales.Some products don’t sell at all. In California, 14 percent of products did not sell and took up valuable space on store shelves. In Oklahoma, 21 percent of products at a median retail price did not sell in a 90-day period.The more mature Canadian market is more inventory-efficient than the U.S. market. Over a 90-day period at the median store in British Columbia, more than twenty-four out of twenty-five products logged at least one sale.

“For me, the most surprising aspect from the report is the shocking percentage—closing on 20 percent in many regions—of products that have had zero sales in the past 90 days in both mature markets that have had legal cannabis for some time, such as Oregon and Washington, as well as emerging markets like Michigan,” said Cy Scott, co-founder and chief executive officer at Headset.

Scott also explained the Canadian industry is more efficient with its inventory for two primary reasons. With cannabis federally legal in Canada, there are smaller differences between assortment among provinces because there is cross-province distribution and a few large players produce many of the products. Canadian “cannabis 2.0” products (beverages, vaporizers, etc.) remain relatively new compared to their market presence in the U.S.

Size matters

For struggling small operators, slow-moving inventory can be a serious concern. The factor has contributed to industry analysts’ prediction that a wave of consolidation is on the horizon for many smaller brands. With razor-thin margins in competitive markets like California, retailers can’t afford to make many mistakes and risk damaging their relationship with both customers and suppliers.

“I think it is a big problem, but an unavoidable natural byproduct of an industry in the process of maturation,” said Scott. “For retailers and dispensaries, the challenge is with so many new SKUs coming to the market and general consumer preferences and overall brand loyalty still in its early stages. That makes it harder to optimize at the moment, but looking at the data is a good first start.”