In 2019, retail cannabis sales in California alone totaled nearly $3 billion[1]. And while the National Retail Federation estimates overall retail sales in the Golden State to be more than 7 times this figure, the security concerns for the cannabis industry extend beyond those of traditional retail.
The cannabis industry faces unique challenges compared to retail in general. Elements such as a different regulatory framework by state, a lack of banking options due to federal restrictions, and a still-thriving secondary market all contribute additional security considerations. These aspects can also create attractive theft and fraud opportunities for potential malefactors than is found in more traditional retail sectors.
A 2019 hearing held by the Senate Committee on Banking, Housing, and Urban Affairs featured witness testimony that one in every two cannabis dispensaries were the target of robberies with typical losses as high as $50,000 per robbery. Dispensary operators must manage this security risk while still creating a positive customer experience.
Finding cost-effective ways to reduce this risk is a priority for both dispensaries and the retail industry more broadly. And the use of technologies with AI not only strengthens security but also business operations in general. Camera analytics can alert operators to long customer wait times, automate inventory checks, and even ensure the correct promotional signage is displayed.
Point of Sale is the Apex of Accountability
For both dispensaries and retailers in general, the focus area for security is the point of sale. Video cameras covering the cash register are ubiquitous. And incorporating additional technologies such as sound, AI, or other business intelligence analytics transforms the overall security system from one that merely records events for forensic review, to a proactive tool for operations.
Operators and loss prevention staff in both cannabis and retail will monitor and review potential “red flag” transactions in order to identify likely sources of shrink. These transactions commonly linked to shrink include open drawers, voids, and manual discounts. In 2019, shrink in the retail industry totaled an estimated $50 billion according to the National Retail Federation’s annual security survey[3]. To combat this immense amount of loss, the National Retail Federation reports in the same survey that 76% of retailers will increase or maintain their security budgets.
The need for intelligent security systems in cannabis will only grow as more states enact medical and recreational use laws. Presently, eleven states have legalized adult recreational use and an additional 20 states have legalized medicinal use.
ClearLP, a Chicago based integration firm operating across nine states, sees additional security considerations germane to the cannabis industry beyond what is typically installed in retail applications. According to Senior Security Consultant Dan O’Sullivan, as demand for cannabis products grows, so do the security risks. O’Sullivan’s assessment is rooted in eighteen years of security integration experience with specialties in various point of sale applications across the financial, commercial, and retail sectors.
“New demand means a greater number of customers and employees in a dispensary,” O’Sullivan said. “The amount of cash on hand and inventory on-site also increases. The fact that cannabis products are easily concealed due to their size combined with a still thriving secondary market means that the risk of shrink is far greater than that of traditional retail.”
O’Sullivan recommends that dispensaries go above and beyond their state guidelines for security in order to protect against losses. He continued, “the influx of cash to dispensaries enables them to implement technologies that not only provide security but also provide business intelligence analytics. The insights provided by these analytics enable operational improvements for both dispensaries and general retailers.”
ClearLP partners with March Networks, a provider of advanced video and data analytics with a platform specialized for both cannabis and retail. By integrating comprehensive point of sale solutions combining red flag transaction alerts with inventory tracking through RFID tags, dispensaries can monitor and clearly identify fraudulent transactions. The same system can also provide heat-mapping data showing which areas of the dispensary or retail location customers visit most frequently, which helps operators optimize product locations to increase sales.
Let's Hear It
With sound-enabled at the point of sale, the system becomes even more robust. Consider the aforementioned red flag transactions and the additional information and context provided by audio. Through the point of sale analytics, the loss prevention team receives an alert that a non-standard transaction took place such as a manual discount or override. By reviewing these types of transactions, operators can determine whether a given transaction was the source of a loss.
For example, visualize a transaction in which the recording shows an employee making a good faith attempt to resolve a customer service issue by giving an unauthorized discount. A common video only installation would show only an employee and a customer conducting a transaction at the point of sale, providing no context to the discussion or additional information to act upon. With sound included in the recording, loss prevention staff could hear the complaint made by the customer, the response from the employee, and conclude that the employee showed positive intentions, even if proper procedures were not followed. Additionally, because of the information provided by the audio, the business can take remedial steps to ensure the cause of the customer complaint is resolved.
Alternatively consider a similar scenario in which the video recording shows the exact same interaction between the employee and customer, however, the audio shows that the two are friends and there is no valid reason to offer the discount.
Both situations appear identical on video. It is the inclusion of sound that enables the loss prevention and management team to take appropriate follow-up steps ranging from recognition for customer service to corrective action or review their internal operations to ensure the same complaint does not arise in the future.
Beyond traditional security functions, cameras with sound enabled allow retailers and dispensaries to improve customer experience. Brick and mortar retailers must compete not only with each other but also with online sellers who offer discounted prices and home delivery. In states with legalized cannabis markets, first-time customers may be nervous or anxious about even entering a dispensary given the longstanding stigmatization of cannabis. Providing strong customer service and experiences allows retailers and dispensaries to compete against the convenience of online sellers and delivery services.
As part of the effort to provide outstanding service, video and audio can ensure that employees greet customers upon entering the store, that they follow sales scripts, and potentially create repeat business by promoting customer loyalty programs. Intelligent video analytics can inform retailers of peak traffic times and average wait times for service. In turn, retailers can optimize staffing and inventory levels. And in both general retail and dispensaries, security technology can ensure compliance with state and local regulations such as verifying a medical card or checking the purchase history for controlled goods such as cold medicine with pseudoephedrine.
The recent growth of the regulated cannabis industry has brought with it expanded security challenges for cash management, inventory control, and customer service. Operators can benchmark retail security best practices from the point of sale by using intelligent security devices and analytics that go beyond regulatory minimums. Such systems can protect employees, assets, and operations, helping businesses in cannabis thrive.
About the authors: Cameron Javdani is President at SoundSecure. Javdani previously held senior sales and marketing positions with Louroe Electronics for more than eight years and had marketing stints with Target and AT&T.
Chris Jensen is a Security Solutions Consultant and Business Intelligence Advisor for the Cannabis Vertical for March Networks.
Sources:
[1]California Now Has the Biggest Legal Marijuana Market In the World https://www.latimes.com/california/story/2019-08-14/californias-biggest-legal-marijuana-market
[2] Challenges for Cannabis and Banking: Outside Perspectives. July 23, 2019. https://www.banking.senate.gov/hearings/challenges-for-cannabis-and-banking-outside-perspectives
[3] National Retail Federation, National Retail Security Survey 2019, July 6, 2019, p1.
