This report is a deep dive into Headset’s accumulated data on discounts. Using our real-time data on pricing, as well as some native charts from our new Demand Planning tool, we’re able to see when and by how much products are discounted, allowing us to see how they connect to external events like 4/20 or Thanksgiving. We can also see how discounts have evolved since the launch of the legal cannabis industry, how consumers respond to them, and when they’re most effective. Anyone who works in the retail side of the industry, or is simply interested in the behavior of cannabis consumers, will find this report useful.
When the first legal cannabis was sold it was definitely not discounted. Eager customers lined up to pay $20 or more for a single gram, selling out stores like Seattle’s Cannabis City in a matter of hours. To put it a bit lightly, a lot has changed since then.
Now that cannabis is ubiquitous, at least in legal states, putting it out on the shelf in a plain mylar bag doesn’t quite cut it. Cannabis is closer than ever to being a traditional consumer packaged good, with seasonal sales trends, sophisticated branding, and, of course, specials. There is real competition, and that’s led to fairly significant reductions in average prices. Discounts are, of course, part of that story. The raw dollar amount of discounts has climbed very steadily since the legalization wave began, indicating that they’re an integral part of the industry.
At Headset, we love looking at how data reflects the actual human experience of buying cannabis, and discounts are a particularly great way to do that. We get to see what motivates people, what they’re willing to spend big on, how they respond to consumer holidays, and so on. We’ve also just launched a new tool, Demand Planning, that allows subscribers to drill down into discounts with extremely specific time and product parameters. For this report, we’ve borrowed a number of graphs that are directly pulled from Demand Planning and do what we think is an excellent job of illustrating how discounts affect consumer behavior.
We start with a look at year-over-year discounts, the broadest way to understand pricing in the cannabis industry. Then, we borrow our weekly discounts graph for 2019 from Demand Planning, which provides a great snapshot of how holidays and other seasonal trends played out in terms of discounts. Balancing discounts and actual revenue is a big blind spot for the entire industry it turns out, at least on certain days. On that theme, we also look into how discounts around two major holidays— 4/20 and Thanksgiving — stack up against the rest of the year.
After that, we examine whether discounts drive volume, looking at the discount makeup of different sizes of baskets (individual purchases at a retailer). We then borrow another graph from Demand Planning, this time comparing average discount to average item price (AIP), which lets us see whether big ticket items also carry big discounts. Lastly, we review another Demand Planning graph on which package sizes see the biggest discounts, which is, somewhat amusingly, not novel information for anyone who used to work in the black market. Buy in bulk, get a break!
Overall, a picture emerges of a market that has not quite figured out how best to use discounts but is getting close. Sometimes it’s about what you don’t do, and that definitely applies to discounts. While they absolutely do what they’re supposed to, in terms of driving volume, there are certain situations where they cost a business more than they’re worth. Knowing what those situations are is more important than ever. This report, we hope, will help.
A discount is defined by Merriam-Webster as “a reduction made from a regular or list price.” In this report, we discuss discounts, average discounts, and percent discounts. We define discount as the actual amount the price has been reduced by, while a percent discount is the percentage of the original price that the discount constitutes.
What is a discount?
Average discount reflects the total dollar amount of discounts for a given parameter (a date or time, a geographic location, or a product category, for example) divided by the total base price of products sold for that parameter. Average discount does not reflect the average discount for any individual products. Regarding base prices, nearly every POS system used by the cannabis industry requires users to enter a base price when they input products to inventory. This is the full, pre-tax price of the product with no discounts applied, which is what we use to calculate our discount amounts and percentages against.
Data for this report comes from real-time sales reporting by participating cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. The data included are from as far back as 2014, and as recently as the previous month. Some slides include data for more specific date ranges, which is noted therein. Sales data are cross-referenced with our catalog of over 400,000 products to provide detailed information on market trends.
Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. For this report, the data are also self-reported by loyalty program participants. Thus, there is a slight margin of error to consider.
Along With Dropping Prices, Deeper Discounts
Which weeks do best with discounts?
While it is important to know that discounts have increased over the years, it’s even more interesting to see how they’re applied across a given year. Looking at the past year, and most of the first month of this one, we see that there are a couple distinct peaks for discounting. Those are, of course, the major shopping holidays for cannabis: 4/20, obviously, as well as the week of Green Wednesday, Thanksgiving, and Black Friday. What’s especially interesting about these data is that big discount increases behave differently during these two key periods. For 4/20, which saw the largest jump in average discount, at a 31.9% increase over the previous week, discounts seemed to help — sales were up by 24%. Conversely, the week of Green Wednesday and Black Friday didn’t have a significant increase over the week prior, with a 28.5% average discount and an increase in sales of only 1.9%. While it would be easy to conclude that 4/20 discounts draw people in while Thanksgiving week ones do not, it isn’t exactly that simple, as we’ll see in the next slide.
Looking deeper into holiday discounts
If we look at the breakdown of which sales were discounted during the two big holiday discounting periods, it’s pretty obvious that more people buy discounted products during Thanksgiving week. Only 46.16% of products sold between Green Wednesday and Black Friday were not discounted at all, while 62.05% of products sold on 4/20 were sold at full price. Interestingly, that’s about 1.5% higher than during the rest of the year, suggesting that savings are not the main motivation of 4/20 shoppers. While more shoppers buy deeply discounted products (30-50% discount) on 4/20, the majority shoppers around Thanksgiving are buying with at least a 20% discount. Referring back to the previous slide’s chart, which shows 4/20 outperforming Thanksgiving week in terms of extra sales, it’s safe to assume that the volume of discounted products being sold between Green Wednesday and Black Friday is driving down total sales. The big takeaway here is that what you discount really, really matters.
Bigger discounts means bigger baskets
Examining Washington State sales data from 2019, we see a pretty neat trend line with regards to the discount composition of baskets as they grow in size. This time, we’ve stolen the chart from our Retailer Premium software, but it’s just as relevant to understanding consumer behavior around discounts as the Demand Planning graphs. While this doesn’t prove causation, the correlation between deeper discounts and bigger baskets is pretty clear here. As spending goes from $5 per basket to over $200, we see the percentage of non-discounted items decrease dramatically, from 83.2% to 17%. At the very top end, items over 50% off even start to show presence, making up 6.3% of $200+ baskets. Customers certainly seem to be cashing in on these deals. And while these sales data don’t give us any information on margin, being able to increase sales volume is always a good thing.
Are prices and discounts linked?
Spoiler alert: mostly. Categories with higher AIP have lower average discounts in almost all cases, with the notable exception of Concentrates. The average across all categories is 9.3%, and every product with an AIP of $20 or more had a — bear with us — lower than average average discount, except Flower at 9.4%. Notably, Concentrates saw a 12.8% average discount and an AIP of only $19.09. On the other side of the spectrum, Edibles had the lowest average discount at 7.9%, with an AIP of $16.56, which is not as high as the lack of discounting would suggest. Generally, lower discounts and higher prices would make sense, as the prices are lowered by the discounts. That doesn’t seem to be the case across the board though, with each category behaving differently. Edibles, for example, are often sold in small, individual sizes, so AIP could be intrinsically low. That’s the case with Pre-Rolls as well, but they’re much more aggressively discounted, so it makes sense that they’ve got the lowest AIP at $8.50. While there’s no neat trend here to explain the relationship between AIP and discounting, this chart can definitely be useful for anyone looking to identify areas that are relatively uncrowded, in terms of specials and promotions.
What discounting trends exist in a given week?
In this graph, we compare the average discount by day of the week for the total market, and then it also looks at two of our standout categories from the previous slide, Edibles and Concentrates. Across the total market you’ll see there isn’t much fluctuation in discounting by day of the week, although Wednesdays and Fridays see slightly higher discounts than average while the weekend days see lower than average discounting. For Edibles, Monday is the day with by far the highest discount at 9.5%. This is almost certainly due to the popularity of ‘Munchie Monday’ promotions where Edibles are featured on Mondays. You’ll see something similar for concentrates. Wednesday is the biggest day (Wax Wednesday, with Saturday coming in a close second (Shatterday). Curious how other categories are impacted. Dive deeper into this graph shown and get the full picture in our full Insights Premium tool.
Buy in bulk, get a break
This graph (from our new discounting dashboard in Insights) may be the least novel information in this report, but it’s always nice to see what we already know confirmed by data, isn’t it? According to our data on discounts and package size, the more you buy, the more you save. Margins improve for sellers almost perfectly linearly as package size decreases. Per our earlier joke, anyone who used to split up an ounce and sell it to friends back in college will not be the least bit surprised by this chart. Regardless, knowing that the same thing is true for the legal market can be useful in a variety of ways. Because margin is tighter on bigger package sizes, it’s extra important to make sure they move. While it might be fun to get a “unicorn” ounce on your shelves for bragging rights, if it sits unsold and you have to discount it, it’s going to hurt. Single grams and pre-rolls, on the other hand, have way higher margins to begin with, so stocking the occasional dud doesn’t set you back nearly as far. The graph below comes from our new Insights Discounting dashboard - become a platform subscriber and start today
Discounts are definitely connected to prices, but not directly. While discounts have gone up year-over-year and prices have gone down, the story isn’t always that simple.
• The sharpest spikes in discounts fall on 4/20 and Thanksgiving week, but consumers respond very differently depending on which.
• Consumers are more likely to buy discounted items — especially heavily discounted ones — during Thanksgiving week. During 4/20 it seems like people are just there to buy pot, no matter what the price, although deeper discounts do perform better on the big day.
• The more discounted items a consumer buys, the bigger their basket is. Whether that means more money for the retailer isn’t exactly clear, but it is abundantly clear that more discounts mean more sales volume.
• While it might seem like categories with deeper average discounts have lower average item prices (AIP), this isn’t always the case. Many categories behave differently with regards to discounts.
• When it comes to package size, the more you buy the more you save. This is, perhaps, one of the few things that hasn’t changed since the black market, as sellers are always looking to capitalize on high volume sales.
As mentioned earlier, discounts still have room to grow, though not indefinitely. Prices pretty much universally fall after legalization, and discounts are part of that story. Given that the wave of legalization sweeping across America hasn’t exactly crested, weed is only going to get cheaper. Our data suggest that discounts will grow alongside that.
However, it’s clear that discounts have to be applied very specifically to work. Retailers in well-established legal states can certainly tell you that! The gulf in topline sales between 4/20 and Thanksgiving week is proof enough though. Conventional wisdom would tell you that Black Friday, and the newly minted Green Wednesday, are going to be big days for sales. But while deep discounts do drive volume, as our basket analysis shows, that volume doesn’t do much for sales around Thanksgiving. Next year, we would urge retailers to read the room when it comes to these seasonal discounts, and perhaps consider deeper, more eye-catching discounts, but fewer of them.
It’s might also be worth getting more specific, as each week has trends within it. Wax Wednesdays are a thing, or are at least becoming one, so being able to see if people at your stores actually do buy more Concentrates on Wednesdays is crucial information. The same is true for Edibles on Munchie Mondays. Not to be too direct about it, but the reason we created Demand Planning was so that customers could section off data in very specific ways, telling them exactly what they need to know about their business. Most of the information in this report can be found in Demand Planning, but with completely adjustable parameters: by day, by time of day, by category, by product, by location, and so on.
Indeed, the main prediction we would make about discounting is not that it’s going to continue — cannabis is regular retail now, so that’s obvious — it’s that it’s going to have to be much more targeted to succeed. As we see here, you can certainly throw discounts at something to get rid of it, but it doesn’t mean you’re going to make money. Knowing how and when to apply them is crucial!
Headset is a consumer data analytics platform that provides market intelligence for the cannabis industry. Our extensive Market Reports deep-dive into specific categories and aspects of the industry to help businesses better monitor the market and perform exhaustive category analysis. Reports are generated via aggregate, real-time transaction data to get a unique and thorough analysis of what’s happening in the cannabis industry as the data becomes available. Headset offers three distinct products that help retailers, dispensaries, brands, product manufacturers, distributors, and investors move ahead in the industry.