How to Avoid Employee Theft in your cannabis dispensary

Employee theft can be a very huge problem for many small businesses. Cannabis dispensaries have been forced to shut down due to theft. A report by the U.S. Department of Commerce reports that nearly a third of businesses fail due to employee theft or fraud. An extensive study related to fraud was done by the Association of Certified Fraud Examiners (ACFE). It spanned various industries in 125 countries and one of the conclusions is that the ACFE estimates that an average 5% of revenue is lost due to theft and fraud.  On a global scale, this loss from theft or fraud would come out to roughly $4 trillion annually.

Employers trust their employees to handle a variety of tasks in their operations. This is especially true in the cannabis industry where large amounts of cash are held in a marijuana dispensary along with valuable inventory. It is kind of a scary statistic that employees are responsible for 44% of losses from theft, according to the National Federation of Independent Business (NFIB).

What is the fraud triangle and how does it relate to employee theft in a cannabis dispensary?

The fraud triangle is a model that illustrates the three conditions that are present in many fraud cases. These three conditions are 1) pressure, 2) opportunity, and 3) rationalization.

Pressure could be a financial or emotional force pushing someone towards committing the theft. One of the employees in your cannabis dispensary could be going through tough economic hardships. Opportunity is the ability to execute the theft without getting caught. There are opportunities in a dispensary to pocket cash or weed. Rationalization is the personal justification of the theft. An employee could rationalize that they will repay the owner the marijuana dispensary at a later point in time.

What are common ways employee theft occurs in a marijuana dispensary?

Theft can have an enormously detrimental impact on a cannabis dispensary, especially if the dispensary is just starting out and getting established. Knowing some of the common things that employees tend to steal can be helpful to combat against it. Obviously, the two most common things to steal from a marijuana dispensary are cash and weed or other cannabis-related merchandise. It is important to establish business processes that allow you to supervise the cash and marijuana inventory handled by your employees in daily operations.

With regards to cash, it is important to understand when money changes hands. This can occur in a sales transaction, while storing cash into a safe, or cash payment to a vendor for marijuana products. With regards to your marijuana inventory, the shrinkage or loss of inventory can happen at any time in the merchandise distribution process. However, seed to sale tracking is supposed to mitigate employee theft of cannabis plants and is mandated in some states to mitigate a black market for weed.

Employees can also steal non-tangible assets such as trade secrets, customer lists, and other proprietary information that could be damaging to the marijuana dispensary in the hands of competitors. Another example of a non-tangible asset related to a marijuana dispensary might be the stealing of proprietary cannabis genetics in the form of seeds or clones.

What are some ways to prevent employee theft in your marijuana dispensary - Finddankweed

What are some ways to prevent employee theft in your marijuana dispensary?

 Know your employees that will be working in your cannabis dispensary.

One of the best pieces of advice to avoid employee theft is to know your employees. It is important to do your due diligence when hiring employees to work in your cannabis dispensary.  It is important to check work references but equally important to do a background check. This will help ensure that you are hiring a trustworthy individual that isn’t going to rob your marijuana dispensary blind when you are not looking.

Supervise the employees of your cannabis dispensary closely.

Studies show that when employees are not supervised theft and fraud usually increase and this would also hold true for marijuana dispensaries. You don’t need to micromanage your employees and look over their shoulder at every task. This will make the employees in your dispensary feel that you don’t trust them and this would also not be a wise use of your time.

It is recommended to have a strong internal control system in place in the daily business operations of your marijuana dispensary. This means that you are checking what your employees are doing at critical points in significant financial transactions your dispensary is involved in on a daily basis. It is also wise to have a separation of duties among your employees so there is not just one person that has control over all tasks.

Perform informal audits as the owner of a cannabis dispensary.

It would be a wise idea to make unannounced internal audits maybe a couple times a year.  Depending on the size of your cannabis dispensary, it may not be a bad idea to do an annual audit by an independent outside firm. This outside firm would perform an audit that is done independently of your periodic internal audits.

Understand technology that cannabis dispensaries can use against theft.

Many states employ a seed to sale tracking system which tracks a cannabis plant from either seed or clone all the way to the sale of some form of marijuana product. METRC Is a software solution used by many states and their marijuana enforcement agencies. This system allows them to monitor every cannabis plant and which stage it is in its cultivation cycle.

 

As the owner of your cannabis dispensary, it is important to understand your computer systems and the software that you’d be using in your operations. More importantly, it is important to know how these tools could be used to siphon off money or inventory by a potentially dishonest employee. Restricting access to certain systems is one security measure that can be used by the owner of a cannabis dispensary. California requires one person from a marijuana dispensary or business to be certified in METRC.

 Inventory management system for cannabis dispensaries.

It is usually required by state law to have a sufficient camera surveillance system in cannabis dispensaries. This is to monitor not just the movement of customers but also the movement of marijuana products and the cash. These cameras should be placed in locations where it can watch the cash and inventory during and outside of business hours. There should also be a periodic physical inventory count done by the person that is not responsible for the inventory records.

Secure checks used by your marijuana dispensary business.

Sometimes a cannabis dispensary will have to write a check. It is a good idea to use pre-numbered checks with permanent ink. Blank checks used for the marijuana dispensary should be stored in a secure location. It is recommended to produce checks out of a financial system for the purposes of tracking these expenses. Such a recommended financial system is Quickbooks.

Quickbooks can also work for cannabis dispensaries for financial reporting.

Quickbooks is a pretty good financial reporting tool for small and mid-sized businesses in many industries. It is not a bad idea for the owner of a cannabis dispensary to start using QuickBooks for internal financial reporting and general bookkeeping.

 What are some red flags related to the behavior of employees in your marijuana dispensary?

What are some red flags related to the behavior of employees in your marijuana dispensary Finddankweed

It does not hurt for a cannabis dispensary owner to observe their employees and changes in behavior. Sudden changes in your employee’s behavior could be potentially be a red flag that your employee is involved in some dishonest actions. The ACFE

There are some behavioral red flags that your employee could be exhibiting when involved in theft. that cannabis dispensary owners should be aware of. Here are six such red flags in an employee’s behavior to watch out for:

  • Employees living beyond one’s means
    Employees having financial difficulties
  • Unusually close relationships with vendors or customers
  • Unwillingness to share duties or change responsibilities
    Divorce or other family-related issues

A employee showing a “wheeler-dealer” attitude or cultivated self-image

 There are a few preventative measures that can help you combat the most common ways that employee theft can plague your marijuana dispensary. Ensure effective safety and security measures to not only protect your customers but also your cash and your cannabis inventory. Have a good camera surveillance system which can monitor not only assets but employees. It is a good idea to not only use internal audits but also involve an independent CPA firm to do annual audits. Seed to sale tracking should help with employee theft but it is also important to have strong internal controls in place that will help supervise key control points in significant financial transactions of the daily operations of your marijuana dispensary.

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