Days Inventory Outstanding – Cannabis Leaders and Laggers

The TDR Three Key Takeaways:

  1. Days Inventory Outstanding (DIO) is a vital cash flow indicator, and for cannabis companies, the average DIO is significantly higher than that of companies in established industries.
  2. A decreasing trend in DIO is generally a positive sign, reflecting better inventory management, cost reduction, and alignment with market demand, which are indicative of sound business operations.
  3. We share a list of the standings of all 43 Cannabis companies we follow below!

≈ Outstanding (DIO) is an important measure for companies, including those in the cannabis industry, as it indicates the average number of days a company holds inventory before selling it. This metric is essential for cash flow, as limited inventory reduces the capital tied up in unsold goods, lowers storage costs, and minimizes obsolescence risk. A trend of decreasing inventory levels typically signals operational efficiency and closer alignment of production with consumer demand, which can enhance liquidity and profitability due to reduced storage, insurance, and maintenance costs. It’s also seen as a sign of competent management and strategic operations.

For instance, industry giants like Walmart and Apple have DIOs of 42 and 9 days, respectively, illustrating high efficiency after years of optimization. In contrast, our analysis of 43 cannabis companies reveals an average DIO of 135 days and a median of 110 days. To determine the leaders and laggards in Days Inventory Outstanding among cannabis companies, The Dales Report (TDR) has conducted research and compiled the data from the latest quarterly results.

So, the top five companies are Trees, Body and Mind, Indiva, and Glass House Brands. However, inventories alone aren’t the sole factor to consider. We also need to examine Days of Outstanding Payables and Receivables. This type of analysis offers a comprehensive view of the companies’ cash flow and whether it aligns with the narrative presented by the income statement and balance sheet. We will share this additional analysis with our readers each week.

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