The Importance of a Robust ERP Solution for Cannabis Operators

The future of the cannabis industry is in Enterprise Resource Planning (ERP) systems. ERP refers to a type of software that organizations use to manage day to day business activities, such as accounting, procurement, compliance, and supply chain operations. This type of software helps organizations plan, budget, and report their financial results. To a cannabis operator, an ERP system is essential for production control and inventory management, as follows:

• Production control is important because it optimizes and schedules resources to help operators meet production demand.
• Inventory management is important to track and manage raw materials, work in process and finished goods.

Production control and inventory management go hand-in-hand to streamline manufacturing processes. Working well together, they optimize a healthy gross margin without over or under producing inventory.

As a Cost Accountant with a manufacturing background, in my experience it is common to see these types of systems. In the cannabis industry, most companies operate their businesses on QuickBooks, use spreadsheets, and a mandated seed-to-sale software.  This is a great starting point for a small company; however, as competition becomes more prevalent, a more robust platform is necessary to track expenses, production transactions, and provide reporting to management.

Since I joined the Bridge West team, I have been performing extensive research on inventory software platforms. My goal is to identify platforms that are fluent in the cannabis sector and can handle these types of transactions. There are many systems on the market, and it can be very confusing for operators to determine which is the best and most appropriate choice for their company. Ideally, Bridge West is looking to identify a cost-effective solution that is beneficial for both the operations and accounting teams. In my research to date, including meeting with many software providers at MJBizCon this year, I found that most packages are beneficial for one, but not both.

I recently consulted with a client to assist them with the set-up of Bill of Materials (BOM) for their direct material costs and Routings to follow each step through the manufacturing process. We also recommend performing labor time studies. The goal of this study is to observe and measure human work to establish the time required for the completion of specific tasks.  The objective is to establish a standard time for a particular task. When done correctly, this time study can help the management team oversee efficiencies and effectively manage the work that is being done on the production floor. There are also indirect manufacturing costs such as lease or rent expenses that can be allocated by square footage to include inventoriable costs.  With this valuable information an hourly overhead rate can be determined. A cost roll is then performed to add the material, labor resources and overhead costs to obtain the total manufacturing cost per gram or per unit.  In the cannabis industry, these analyses are important. When the product is sold, the goal is to get all possible expenses into inventoriable costs that become Cost of Goods Sold (COGS) to stay compliant with 280(e).

If you are interested in learning more about the benefits of ERP systems, or if you would like assistance in selecting and implementing an ERP system, please reach out to Bridge West to schedule a call or contact me at 651-287-6324 or j.neuendorf@bridgewestcpas.com.  We’ll ensure that you select the most appropriate ERP system for your cannabis business.