Article on Putting a Stop to Diversion

Recent Article Appearing in April 2016 Issue of Marijuana Venture

Diversion is an issue that plagues all businesses, but in the cannabis industry, diversion can lead to more than just loss of profits.

In many states cannabis business operators face serious consequences for diversion, such as license revocation or even criminal liability. However, security guards and alarm systems may not be enough protection as a shocking 90% of diversion in the cannabis industry comes from employees. Comparatively, non-cannabis related retail industries typically report that approximately 43% of diversion is from internal sources.

How Cash and Products are Diverted in Cannabis Businesses

There are many ways employees divert cash or product from a cannabis business including theft, sales manipulation, and robbery assistance.

  • Theft can appear in a variety of types from trimmers who report lower harvests and keep dried flower for themselves, to employees who simply grab cash from an open vault and leave the premises.
  • Sales manipulations happen primarily in the dispensary and occur when employees provide excessive discounts to friends or themselves, apply coupon codes to sales that do not qualify, or otherwise manipulate the point of sale system to the detriment of the business.
  • Assisted Robberies: unfortunately, there have also been reported instances of dispensary employees providing internal security protocols and information to assist in robberies of cannabis businesses.

What You Can Do As a Business Owner

While strict inventory procedures, state of the art surveillance systems, and trained security officers certainly help prevent opportunity for diversion, business owners must also implement strong business practices in order to combat theft by employees. It is imperative that each dispensary, processor, or cultivation facility develop a strong corporate culture with clearly defined expectations and guidelines for employees. This will help ensure that personal responsibility for compliance and inventory control resonates throughout the business from the top down.

Building Employee Loyalty to Combat Diversion

Higher rates of diversion often correlate with high employee turnover. Providing staff with benefits, adequate discounts, and opportunities for career advancement will reduce employee turnover and in turn, reduce theft. Employees who are able to view their position as a career, rather than a short term retail job will be more invested in ensuring the success of the company and less willing to risk being terminated and losing their benefits. For this reason, business operators should employ the services of a reputable human resources provider with experience in the cannabis industry. Not only will they make sure you remain compliant with state and federal labor laws, but they can provide guidance in reducing turnover and improving employee satisfaction. Many human resources providers will also assist you in the creation of an employee handbook to helps set expectations and guidelines for your staff, which then increases accountability and personal responsibility.

Examples of Effective Operational/Behavioral Protocol

While physical security measures provide a first layer of protection against diversion, detailed behavioral protocols and procedures for security ensure opportunities for internal diversion are greatly reduced. Here are some examples of practices that can limit diversion:

  • Inventory and cash should be counted by at least two employees at each shift change with any discrepancies investigated immediately.
  • A schedule must be established and strictly followed for inventory counting procedures that ensures a more in depth inventory count is performed at regular intervals.
    • Discovering the source of inventory discrepancies is much easier when a specific time frame is known for the investigation and information is still fresh.
  • Additionally, requiring a manager or other secondary employee to approve all coupons and discounts at the point of sale can reduce opportunities for sales manipulation.
    • While this creates an extra step which can be time consuming, the reduction in diversion opportunities is well worth the extra time. This extra step also allows managers to ensure all employees are appropriately trained on the point of sale system and are ringing up sales correctly.

Summary

In order to ensure the success of your cannabis business, remaining in compliance while minimizing opportunities for diversion is essential. So refine your business practices, set clear roles and expectations for employees, and provide benefits packages. Happy employees are far less inclined to steal and are more invested in the success of the company. The cost incurred from offering benefits packages and more extensive training will quickly be outweighed by the reduced loss of profit.