Dispensary Gift Cards, Discounts Might Not Pay Off This Holiday Season

While gift cards can fill a marketing role, they're not a panacea.

Gift cards can drive loyalty and act as mini billboards for dispensaries to market their schticks, but businesses should use caution as the money may not make sense for margins this holiday season.

While it’s true that retail consumers are reported to respond to loyalty programs, holiday discounts, and gift cards, operators “really run the risk of diminished returns with pushing those programs heavily,” BDSA analyst Brendan Mitchel-Chesebro said.

“The big shift there is that, just with the trends we’re seeing with pricing, margins are already so slim, and the price compression across a lot of the biggest markets makes it really tight. It’s something that they have to approach really carefully to be successful,” Mitchel-Chesebro added.

At the same time, shaky supply chains are creating concerns about spotty product selection, which likely will drive 60% more consumers to buy gift cards to offset the uncertainty, according to financial firm Fiserv’s third-quarter 2022 Gift Card Gauge study.

In a study based on the responses of more than 2,000 people, the firm found that 44% of U.S. consumers visit a store they would not have visited otherwise because of a gift card, and 53% are likely to visit a store more often as the result of receiving one.

While many shoppers carefully plan their purchases, 81% of respondents to a survey conducted by Incomm said they would make a special trip to a specific retailer with the right gift card deal. For cards that can only be redeemed at the retailer it was purchased from, 37% of closed-loop users often spend more than their card’s value – around $38 more on average.

When choosing where to purchase closed-loop gift cards, 37% of buyers will look for convenience. Other top factors include the retailer’s product selection (23%), transaction speed (12%), and access to discounts (7%).

And while demand for cannabis is not close to outstripping supply these days, operators can add to margins by having a POS system that can process transactions for customers who want to use open-looped gift cards they may have received from someone for the holidays.

But don’t looks at gift cards in a silo. Examine other options to drive holiday sales as well, Mitchel-Chesebro said.

“We think that they can be useful, but the markups that a lot of retailers are doing on those product makes doing those from a brand side a little bit risky,” he said. “To really do it the right way, a brand would have to have really accurate information about what their pricing scheme looks like versus the markup across all the retailers that they’ve been to.”

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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