Vaping has become a burgeoning health concern in the US and Canada. A September 17 CNN report noted that the seventh vaping-related death occurred in California over the previous weekend. On September 16, ABC News reported a death in California that resulted from related complications.
There has been a lot of conjecture regarding the cause of the deaths related to vaping. According to a CBC report, the Canadian Vaping Association states that there is no evidence of lung disease due to vaping.
However, regulators in several US states have called for a ban on vaping devices. The Washington Post reported that contaminants in marijuana consumed through these devices were linked to the recent lung illness.
What is the government doing?
Due to growing public health concerns, government agencies are addressing the vaping situation. California Governor Gavin Newsom signed an executive order on September 16 related to vaping concerns in the state. Newsom ordered the CDPH (California Department of Public Health) to develop recommendations to restrict the availability of vaping devices to youth.
This executive order also includes the development of recommendations to address the sale of illicit vaping products in California. The order set aside $20 million to raise awareness about cannabis and tobacco vaping products.
The CDC (US Centers for Disease Control and Prevention) activated its Emergency Operations Center to discover the source of the vaping-related deaths. CDC Director Robert Redfield noted, “CDC has made it a priority to find out what is causing this outbreak of e-cigarette or vaping-related injuries and deaths.”
At a federal level, there is a possibility that the Trump administration might consider banning vaping altogether.
How vaping relates to cannabis
If you are closely tracking the cannabis industry, you would be aware that this is a significant issue for the next phase of cannabis products. Take Aurora Cannabis (ACB), for example. In its recent earnings call held on September 12, Chief Corporate Officer Cam Battley stated that it would initially focus on vapes and the edibles market after studying consumer behavior in the US. Battley added that the company is already in commercial production of vape products, as well as related products.
Canada is set to legalize the second phase of cannabis next month. Vaping is one of the product formats that several cannabis companies are betting on.
Canopy Growth (WEED)(CGC) also indicated how heavily it relies on these products. The company’s CFO, Mike Lee, stated that it would be launching vape products for the second phase of cannabis legalization in Canada. He added that vapes, edibles, and beverages would be “a big catalyst” for the company in the next 12 to 18 months.
Tilray (TLRY) was another company that mentioned the potential of this market, especially after Canada legalizes edibles and concentrates next month.
What can companies do to save this market?
The legal cannabis industry is fighting to recover the market share from the illicit market. Products in the illegal market aren’t part of the regulatory oversight process. As a result, the vaping devices or related products bypass the strict regulations that are meant to protect public health. On September 13, Reuters reported that the recent vaping-related illnesses were linked to two illicit brands, Cronic Carts and Dank Vapes.
The cannabis companies that operate legally can use this opportunity to understand and develop products that are safe for consumption. Tilray is developing three subcategories under the vaping segment. During its recent earnings call, Aurora Cannabis stated that it will monitor the CDC and FDA’s findings regarding vaping concerns. Nonetheless, companies operating legally should benefit from the regulatory scrutiny its products receive.
What we think
Cannabis companies are heavily focused on the vape market because it is low-hanging fruit. However, the recent illnesses related to vaping devices may create a negative perception of the product format. This perception can dent the demand for vape products, which could indirectly affect the expectations built into cannabis companies’ projections.
Eventually, the valuations of these companies may take a hit, and investors could see their returns impacted. Amid the already troubled market, the road to profitability for cannabis companies just got steeper.