Cannabis SKU Rationalization: Optimize Inventory

SKU rationalization is key for cannabis businesses to boost profits and cut costs. Here’s what you need to know:

Trim excess stock and focus on top sellers
Improve cash flow and meet customer needs
Regular inventory checks and data-driven decisions are crucial

Quick guide:

Analyze sales data
Cut slow movers
Match stock to demand
Work with suppliers
Monitor key metrics

Challenges:

Getting staff on board
Keeping customers happy
Staying compliant

Focus on your best products to simplify choices and improve your bottom line.

Benefit	Impact
Less excess stock	Lower storage costs
Better cash flow	More growth money
Higher customer satisfaction	More sales and loyalty
Easier inventory management	Less time and fewer errors

Start your SKU cleanup now to streamline your business and boost profits.

1. Inventory Problems in Cannabis Stores

Cannabis retailers face unique inventory challenges:

1.1 Too Much Stock and Poor Sales

Overstocking ties up cash and leads to waste:

Products expire or lose potency
Storage costs rise
Cash flow suffers

"In 2020, about two thirds of cannabis retailers were profitable, but by 2022, that number dropped to 31%."

This drop shows how inventory issues hit profits.

1.2 Following Cannabis Rules

Strict rules make inventory management complex:

Weekly full audits often needed
Inaccurate reports risk fines or license loss
Secure storage required

These rules add costs and time.

1.3 Keeping Up with Customer Wants

Cannabis preferences change fast:

Trend	Inventory Impact
CBD products rise	More wellness items needed
Edibles and vapes demand	Expand beyond flower
Older adult interest	Stock medical-use products

Missing these shifts can mean lost sales and unhappy customers.

Smart inventory strategies, like SKU rationalization, can help tackle these issues.

2. How to Use SKU Rationalization

Here’s how to rationalize SKUs:

2.1 Look at Sales Numbers

Check your POS data for:

Top sellers by volume and profit
Slow movers
Frequent stockouts

List your best and worst performers.

2.2 Check Inventory Expenses

Calculate costs for:

Storage
Expired or damaged goods
Unsold items

Example: Too many quick-expiring edibles waste money.

2.3 Predict Customer Buys

Use past sales and trends to guess future demand:

Seasonal changes
New product trends
Local law changes

2.4 Choose Products Wisely

Set rules for keeping products:

Factor	Question
Profit	Does it make enough?
Uniqueness	Is it different?
Demand	Do people ask for it?
Supply	Can we get it easily?

Use these to decide what stays.

2.5 Work Better with Suppliers

Good supplier relationships help:

Get better prices
Have flexible ordering
Learn about new products early

Discuss your inventory goals with suppliers.

3. Tips for Cannabis SKU Rationalization

Key tips for optimizing your product mix:

3.1 Check Inventory Often

Regular checks spot issues fast:

Full count weekly
Use cycle counting
Compare physical stock to records

Catch problems early and stay compliant.

3.2 Use Data to Make Choices

Let sales data guide you:

Data Point	Meaning
Sell-through rates	Product movement speed
Inventory turnover	Stock replacement frequency
Customer feedback	Product likes/dislikes

Stock what sells, cut what doesn’t.

3.3 Keep Changing Your Product Mix

Stay flexible:

Watch for new trends
Test new items in small batches
Phase out slow movers

Example: If high-potency edibles rise, adjust your stock.

"Inventory is a cannabis retailer’s largest cost center and primary revenue driver."

This shows why smart inventory management matters. Keep your stock lean, costs down, and profits up.

4. Solving SKU Rationalization Problems

Tackle common hurdles:

4.1 Getting Staff on Board

Bring your team along:

Explain the ‘why’
Train on new processes
Reward good ideas

A California manager said: "We involved budtenders in SKU decisions. Their knowledge helped cut 20% of inventory without losing sales."

4.2 Keeping Customers Happy

Handle product removals:

Problem	Solution
Lost favorites	Offer alternatives
Less variety	Focus on quality
Confusion	Educate on curated selection

An Oregon retailer noted: "After cutting SKUs from 1000 to 350, our average items per ticket jumped from 1.8 to 2.3. Customers found it easier to choose."

4.3 Following Changing Laws

Stay compliant:

Partner with legal experts
Use compliant software
Train staff regularly
Audit often

5. Checking if It’s Working

Measure the impact of SKU rationalization:

5.1 Important Numbers to Watch

Key stats to track:

Metric	Meaning	Goal
Average Transaction Value (ATV)	Spend per visit	Increase
Average Cart Size	Items per transaction	Increase
Time Per Transaction	Service speed	Decrease
Inventory Turnover Rate	Stock sell-through speed	Increase
Sell-through Rate	Stock sold in a period	80% by markdown
GMROI	Inventory cash flow/profit	Increase

Example: ATV jump from $50 to $60 after cuts shows easier customer choices.

5.2 Keeping an Eye on Progress

Track weekly or monthly:

Sales by Category
Customer Retention
Order Fill Rate (aim for >90%)
Discount Usage (<18% of transactions)
Employee Efficiency

"By tracking the top five KPIs for cannabis dispensary tracking, you can evaluate important factors in your dispensary, including customer retention, inventory management, employee efficiency, revenue, and advertising ROI."

Review SKU performance every six months to keep inventory lean.

6. Wrap-up

SKU rationalization boosts profits and cuts costs. Focus on top sellers and remove slow movers to:

Cut excess stock
Lower storage costs
Improve cash flow
Meet customer needs

Harborside Inc. checks inventory monthly and select items weekly to stay on trend.

"We follow state trends and track our own sales to predict demand and place orders", said Pedro Fonseca, Harborside Inc. GM.

To succeed:

Check inventory often
Use sales data
Watch market trends
Build supplier relationships

Remember, 70-80% of sales often come from 20-30% of products.

Growers House ($37.2M/year) and Cannabox ($4.2M/year) show how smart inventory choices lead to big wins.

Start your SKU cleanup today for a healthier bottom line.