High operating costs, overhead, lack of tax deductions and services available to most small businesses… It sure is tough in the cannabis industry. No one operating in this space can afford to be in competition with their employees. While much of the focus on theft relates to customers and criminals, employees with sticky fingers can be a silent killer.
Analysts estimate employee theft costs businesses in the U.S. approximately $50 billion per year. Even scarier, it’s estimated up to 75 percent of employees have stolen from an employer at least once, though the severity of the infractions varies. Nobody worries about a few missing pens, but routine theft of merchandise valued at even small amounts can lead to a company’s demise. In fact, about 33 percent of all bankruptcies are caused in part by employee theft.
Because employees have access to both cash and cannabis, dispensaries face a significant risk from within. We asked several experts to share their best tips for curbing temptation.
Discounts and missing merchandise
In the digital age, internal theft can be more complex than someone sneaking their hand into the cash register when no one else is looking. Flowhub Chief Executive Officer Kyle Sherman said one vulnerable area that often goes unnoticed is over-discounting. Some budtenders have an unchecked ability to apply discounts to purchases, and abuse of that system—say, by providing steep discounts or free product to friends and family—can put a severe dent in profits. “Improper discounts are often a great point of loss for dispensaries,” said Sherman, whose company provides a point-of-sale (POS) platform, inventory management tools, and seed-to-sale tracking. “If you are not tracking your discounting, you could be losing a lot of money.” Flowhub’s platform provides managers with the ability to oversee and set limitations on the discounts given out by employees.
Of course, theft is not limited to overzealous discounters. Flower and infused products have obvious appeal for both personal use and to sell on the black market. Inventory stored in the back of the shop too easily can disappear on its way to the showroom. “The budtender can be tracked from the vault to the floor,” said Sherman. “Flowhub forces you to track everything.”
For cannabis companies, employee theft presents more problems than simply a sagging balance sheet. Uncomfortable questions inevitably follow inability to explain how a federally banned substance “fell off the truck.” Sherman believes precise inventory tracking is the only way for operators to protect themselves. “When you get audited, you’d better be ready with relevant information such as which employees handled specific products,” Sherman said. Although most employees likely are well-intentioned and trustworthy, the few exceptions can cause more than headaches for dispensary managers. “Your entire license relies on this one individual, often an entry-level employee, to keep you compliant, so it is important to be able to track exactly what is going on in your shop,” Sherman said.
Eye in the sky
Traditional security and surveillance equipment also are essential—and, in the cannabis industry, typically required by law. “In a retail environment, recorded video evidence is essential for forensic investigation and audit of suspicious events,” said David Raske, chief marketing officer for Bastion Security, which provides security services for the cannabis industry. Like a virtual watchdog, Bastion Security uses the internet to provide protection.
Raske sees surveillance and security equipment playing a more proactive role than some may assume. “Remote video monitoring services use trained security personnel that leverage surveillance systems to provide an additional layer of security,” Raske said. Primarily, such service is employed “in high-risk and outdoor areas, allowing businesses to deter suspicious or illegal activity by employees or outsiders.” The surveillance is continuous and conducted in real-time, which Raske said is more effective than “watch[ing] a video of theft that’s already occurred.”
Remote video monitoring “can also help prevent illegal entry [break-ins] by interacting with suspects when they first approach doors and windows, as opposed to alarm systems that only react once criminals are already inside your business,” Raske said.
Security is all about identifying vulnerabilities and acting to mitigate risk. For cannabis dispensaries, potentially vulnerable locations include inventory storage areas, grow rooms, and retail sales floors. One more key vulnerability exists: people. “It’s an unfortunate truth that, in some cases, theft by non-employees is assisted or coordinated by employees themselves,” Raske said.
Technology such as surveillance systems and POS/inventory managers clearly are essential in helping to reduce theft and maximize profits. According to Veronica Espinoza, human resources business partner at workforce management firm Wurk, operational procedures should be implemented as well. “Ensure procedures are in place for inventory and cash management, as well as register audits,” she said. Also, if your budtenders accept tips, define when these gratuities are counted, how they are divided, and who is overseeing the process.”
Theft requires both motivation and ability. Before an employee ever works on the dispensary floor, procedures can be implemented to reduce the likelihood of conscience crises. “A strong onboarding process can create buy-in for new employees,” Espinoza said. “This is a crucial time to convey the importance of compliance and reiterate your core values so you can help establish an employee’s dedication to the success of the business.”
Although typical theft involves cash, product, or company resources, Espinoza pointed out another problematic area: time. “Operators can use people data from technology systems to gain insight on employee time theft [people regularly clocking-in late, taking longer breaks, clocking-out early] and to get ahead of possible turnover,” Espinoza explained. In fact, the American Payroll Association estimates time-clock shenanigans cost businesses 1.5 percent to 5 percent of gross payroll.
Of course, the best defensive efforts won’t ward off all unfortunate events. Espinoza said management should act quickly when problems develop. “Any violation of company policy must be handled swiftly and professionally,” she said. “It’s important to carry out a thorough investigation and consistently follow policies [that are] in place. Document details of the occurrence and disciplinary action taken on the employee record.”
Employee theft is the number one source of inventory shrinkage.
U.S. businesses lose $50 billion annually in cash and inventory to employee theft.
On average, businesses lose 7 percent of revenue to employee theft or fraud.
33 percent of bankruptcies are caused by employee theft.
Typically, employers don’t detect employee theft until two years after the first event.
About 75 percent of all employees have committed theft at least once.