What this page covers

• How inventory becomes a cash trap
• Turnover math explained simply
• Dead inventory risk
• SKU bloat and menu overload
• Why overbuying flower is dangerous
• Carrying cost most operators ignore
• How to calculate inventory days on hand

The Real Problem: Inventory Is Not an Asset. It Is Frozen Cash.

Inventory shows up as an “asset” on your balance sheet.

But operationally, it is cash that cannot pay:

• Payroll
• Rent
• Taxes
• Insurance

When you overbuy inventory, you convert liquid cash into slow-moving product.

If it does not sell fast enough, your bank balance shrinks.

Inventory as a Cash Trap

Here is what happens in practice:

1. You have $800,000 in the bank.
2. A brand rep convinces you to expand your menu.
3. You purchase $500,000 in new SKUs.

Now you have:

• $300,000 cash
• $500,000 inventory

If sales velocity slows, that $500,000 is trapped.

You cannot pay payroll with vapes sitting in the vault.

Turnover Math: The Most Important Inventory Metric

Inventory turnover measures how fast you sell through product.

Formula:

Cost of Goods Sold ÷ Average Inventory

Example:

Annual COGS: $7,200,000
Average inventory: $900,000

Turnover = 8 times per year

That means you cycle inventory roughly every 45 days.

Why Turnover Matters

Higher turnover:

• Frees cash faster
• Reduces spoilage risk
• Lowers price compression exposure

Low turnover:

• Locks cash
• Increases discount pressure
• Raises dead inventory risk

Healthy NY dispensary turnover often ranges:

6–10 turns per year depending on category mix.

Inventory Days on Hand (DOH)

Days on Hand shows how long your inventory would last at current sales pace.

Formula:

(Average Inventory ÷ Annual COGS) × 365

Using the same example:

$900,000 ÷ $7,200,000 × 365 ≈ 46 days

That means you are holding roughly 1.5 months of product.

What Is Risky?

Over 75–90 days on hand in cannabis retail becomes dangerous.

Why?

• Flower potency degrades
• New brands enter market
• Wholesale prices compress
• Consumer demand shifts

Inventory that sits too long often gets discounted.

Discounting reduces margin.
Reduced margin reduces cash.

Dead Inventory Risk

Dead inventory means:

• No meaningful sales for 60–90 days
• Reorders stopped
• Product aging in vault

Dead SKUs create:

• Margin loss
• Discount fire sales
• Write-offs
• Menu clutter

If 15–25% of your inventory is not moving, you are likely cash-constrained.

SKU Bloat: The Hidden Liquidity Killer

More SKUs does not always mean more revenue.

It often means:

• Smaller purchase quantities per SKU
• Slower sell-through
• Cash fragmentation

Example:

Instead of carrying 20 strong flower SKUs, you carry 65.

Each SKU sells slower.

Your total inventory value rises.

Cash velocity drops.

Menu discipline improves liquidity.

Why Overbuying Flower Is Especially Dangerous

Flower has:

• Price compression risk
• Potency aging
• THC perception pressure
• Competitive discount cycles

Operators often:

• Overbuy high-THC flower
• Follow brand hype
• Expand depth too aggressively

Flower is high-volume but margin-sensitive.

When prices drop, your stored inventory loses value.

That is direct cash destruction.

Carrying Cost: The Expense Nobody Calculates

Inventory has carrying cost.

This includes:

• Insurance
• Security
• Vault space
• Opportunity cost of tied-up capital
• Risk of shrink

If $800,000 sits in inventory instead of the bank, you lose flexibility.

Carrying cost compounds silently.

Realistic Example: Inventory Stress Scenario

Monthly revenue: $1,200,000
COGS at 58%: $696,000

Ideal inventory level: roughly 45 days ≈ $860,000

Operator overbuys and holds $1,400,000 inventory.

Excess inventory: ≈ $540,000

That $540,000 is trapped cash.

If payroll is $280,000 per month, that excess inventory equals nearly two payroll cycles.

That is liquidity pressure.

Signs Inventory Is Hurting You

• Increasing discount frequency
• Slower sell-through month over month
• Cash balance shrinking despite stable revenue
• Large vault counts but tight liquidity
• Reps pushing more SKUs than you can move

How to Fix It

• Track turnover monthly
• Monitor days on hand
• Set SKU caps per category
• Reduce depth before expanding width
• Cut slow SKUs early
• Align purchasing with sell-through, not hype

Inventory discipline equals cash stability.

FAQ

How many days of inventory is healthy in NY cannabis?

Many stable retailers operate between 30–60 days on hand depending on category mix.

Is more inventory safer?

No. Excess inventory increases cash risk and discount pressure.

Should I carry more SKUs to compete?

Only if sales velocity supports it. Breadth without velocity traps cash.

Source Material

• Inventory Turnover Ratio: What It Is, How It Works, and Formula
• The Application of Internal Revenue Code Section 280E to Marijuana Businesses