Loss prevention is one of the more serious undertakings small business owners in the cannabis industry should focus on. There are several key actions that business owners can immediately take to protect their investments and establish the best track & trace methods and measures to avoid theft, fraud and waste. Understanding and implementing these daily habits now will go a long way towards reducing your risks and protecting your business as you grow.
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Simple Preventative Measures
Simple preventative actions that can be taken immediately with both your physical locale and staff include:
Keep both the front of house and back of house organized and clean. Make sure everything has its place so that you can identify a shortage and trace how or why the shortage occurred. During slower times, have budtenders, or other floor staff check displays, return items to shelves, and clean up anything that is not in its proper place.
Do not assign cash drawers to more than one person at a time. Should a pattern develop over time with shortages, having more than one person assigned to a single cash drawer at the same time will hinder your ability to trace the shortage and address the issue in a timely manner. Read more
Require budtenders to open and close their shifts correctly every single day. This is the surest way to reconcile your books and prevent fraud and theft. Discrepancies can be quickly identified, and preventive or corrective measures can be implemented immediately.
Keep your check-out counter clutter free. Excess clutter and stock make it very easy for customers to grab items without paying.
Do not allow Auto Discounts to be stacked. Stacking auto discounts is a very easy way to lose product and very hard to track after the fact. Best practice is to only allow one auto discount per entire purchase.
If you use cameras, review footage on a regular basis and also spot check footage at random times.
Preventative Measures That Help You Track & Trace
Below are best practice preventative measures that will help you track inventory and trace discrepancies:
Cycle counts should be done every day. You can do a section or category at a time. Your daily count is what helps you understand and track your velocity with products and also enables you to catch shortages and trace why they occur quickly. Every time you re-stock you should be doing cycle counts. Should you encounter shortages during your counts, you have the ability to look for patterns, and narrow down likely occurrences. Regular cycle counts provide a firm date so that you have a much smaller window to investigate should you find discrepancies.
Cycle counts for promo items are critical if you cannot do cycle counts daily.
Spot Checks - If you do cycle counting on the first and last day of month DO SPOT CHECKING frequently and randomly. This increases the ability to catch fraud. Do not get tied to specific dates, be as random as possible and spot check different categories and sections each time.
Automate as many discounts as possible to prevent employees from initiating custom price overrides and custom discounts. This ensures you can control and manage discounts. Review your discount report weekly or even daily to understand your best discounts and spot check for fraud.
Customer groups combined with auto discounts can create the opportunity for fraud by being overused or stacked. If you use this method, make sure you understand and spot check the customer groups, so it isn’t abused. Friends and Family is one of the hardest to check on and is also the most abused auto discount. Use caution with this type of auto discount.
Auto discounts need to be spot checked and reported on weekly to make sure you aren’t giving too many discounts. Keep an up-to-date list for Auto Discounts that correspond to Customer Groups and can be checked if there seems to be an overuse of particular discounts.
Audit custom discounts regularly.
Require Manager Approval for the following to prevent fraud and theft by employees:
Returns
POS Ticket Adjustments
Abandoned or Draft Sales
Friends and Family discounts
Manual adjustments of loyalty or reward points
Destroying inventory
Adjustments to inventory
Tighten your quarantine process - Keep returned items away from unsecured bins or the counter where they can easily be taken. Look for collaborations between customers where someone returns an item and while you are processing the return someone else picks up the item and walks out with it.
Restock in batches only. Tamper proof and prevent theft by restocking in batches. Never stock one at a time. Tamper proofing takes some effort but secures stock, is easy to track and trace in case of discrepancies, helps keep you in compliance, lowers the amount of missing stock overall. You can easily vacuum seal or tape as you break into batches to reinstitute new seals and keep accurate batch counts. Best practice is to keep 2 batches on the shelf/on the floor. If you sell 7 items from a batch throughout the day you are not restocking on the 3 items. You sell the remaining 3 then restock with a new batch which is a whole or complete batch.
Always remember to clean before you count, batch, or restock so that you do not inadvertently miss a batch, single product or products set aside for returns/destruction.
Theft & Fraud Scenarios and How to Mitigate Them
Some of the most common loss scenarios are outlined below along with detection and preventative measures that can be helpful in mitigating these types of losses.
Bag Stuffing:
One of the most common occurrences is bag stuffing and is a collaboration between front of house staff and customers. This is when a budtender will "fake scan" an item and put it into the bag without charging the customer. This is one of the most expensive losses that can occur for retail operations.
Detection and Prevention:
Cycle counts, spot checking sales, and using cameras at the POS are effective for both detecting and preventing bag stuffing and keeping an accurate total of stock and verifiable sales.
Sleight of Hand:
People have a bad habit of putting returns on a counter and as transactions are processed take their eyes off the product, it then gets stolen by the next customer in line.
Detection and Prevention:
For returned items, the product should be put in a bin that is out of reach to customers and floor staff. Have management monitor the bins and spot check return sales with physical product in the return bin.
Gaming Rewards Points:
Be aware that supervisors at connected stores have been found to add rewards points to random profiles, and then ring out products under those profiles either as collaborative fraud or for themselves.
Detection and Prevention:
Manager approvals should be standard for when employees are ringing out products for themselves or other employees. Monitoring employee sales both at the POS and on the Cashier Performance Dashboard can deter this type of behavior and can quickly pinpoint if this is an issue.
Gaming Non-Cash Systems:
People gaming a non-cash system is most likely to occur on a Friday as the initial authorization can take up to two days to hit the account. At the POS the sale looks like it is authorized but by Monday the account does not have sufficient funds. By then the customer has already walked out of the store with the product and the retailer has very little recourse but to ban the customer from future purchases.
Detection and Prevention:
Immediately upon detection, flag these customer profiles. You may choose to either ban them from your store or clearly mark they are cash only going forward.
Some retailers choose to have Cash Only Fridays - Sundays to prevent gaming non-cash systems and offer deals to accommodate customers for this slight inconvenience. If you choose this option, ensure you communicate it to both your staff and customers ahead of time, so they are prepared for the variance in flow.
Other Scenarios to Be Aware Of:
Brands have been known to bribe staff to push their product versus your inhouse brands. Brands will also pose as new or returning customers and “demand spam” that a certain product is stocked, then once stocked never be heard from again. This is very common and not going away, so offer your own incentives based on brand sales to mitigate these types of scenarios.
Geo Fencing to Steal Customers - This is specific to delivery companies whereby they hyper target and offer “super” deals in order to steal customers.
Scammers targeting utilities to get someone to take money out of the bank to pay “a bill”.
Pretending to be an owner/manager that needs specific help that requires large amounts of cash or buying high ticket items for them.
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