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The Simple Answer to the Vaping Drama

Jon Brown Jon Brown, Stockhouse
0 Comments| 6 days ago

Mysterious illnesses around vaping continue to grab headlines in the media and Stockhouse recently looked at the market’s response to THC’s involvement.

THC (Tetrahydrocannabinol) is the principal psychoactive constituent of cannabis and recently the US Food & Drug Administration issued a strong warning to the public. It is urging people to stop using vaping products that contain THC, as well as any vaping products obtained off the street.

Cannabis products and THC traditionally go hand-in-hand in the news and as officials call for bans of various elements of the product (flavoured cartridge, etc.) more people fall critically ill, some fatally. An article published this week from Forbes proposes a solution that would be seen as a benefit for licensed producers (LPs) in the United States and Canada: Fully legalize cannabis nationwide across the US.

The article adds that various level of government would need to ensure robust regulation, oversight, and education for users of both cannabis and nicotine vape products. While the illnesses and deaths are a concern, the article also points out that such bans are not likely to lead to policies that will benefit the industry, while other national crises, like the opioid epidemic, continue relatively unchecked. It calls a ban on legally-produced cannabis vape cartridges - “The most counterproductive response possible.” The author notes that of the recorded vaping-related illnesses, the vast majority appear to be related to counterfeit illicit market products. The products contain pesticides, additives and cutting agents dangerous to human health. Jurisdictions that eliminate access to licensed and regulated products may be inadvertently driving these customers and patients to the illicit market, a market that is causing these problems in the first place.

The cannabis industry is watching this movement closely, as analysts say vaping could become the driving force of the recreational cannabis market. In an interview with the CBC, editor of the BCMI Cannabis Report, Chris Damas said that of all the new products coming online, vape pens will make up half of all derivative sales. This includes every other product from pre-rolls to flower to edibles.

With all of these options on the table, consumers are voting with their money and many of the big players in the market are shifting their business to capitalize on it. Canadian cannabis company Auxly Cannabis Group Inc. (TSX-V: XLY) closed a $123 million research and development investment with British tobacco giant Imperial Brands in late September 2019. Under the deal, Imperial gets a foothold in the cannabis market, while Auxly gets exclusive access to Imperial's vape IP, technology and research.

The partnership is intended to “accelerate Auxly's plan to go heavily into the recreational market,” Auxly CEO Chuck Rifici said. “Particularly, the vape category, which we think will be very large.” Imperial Brands has already spent billions into researching vape technologies and intellectual properties.

In December 2018, cannabis company Cronos Group (NASDQ:CRON) received a major $2.4 billion (USD) investment from Philip Morris USA’s parent company, tobacco giant Altira Group Inc. (NYSE:MO), owner of Marlboro cigarettes. A short while later, Altira invested $12.8 billion for a 35% share in the most popular brand of vape pen for tobacco users, Juul.

In his interview with the CBC, Damas explained that every major LP in Canada has been working diligently to capitalize on vape pen sales by late this year to early next year.

Aphria (TSX: APH), Aurora (TSX: ACB), Organigram (TSX:OGI) and Supreme (TSX-V:FIRE) cut deals with PAX Labs to be in a position to sell vape cartridges rather than try to develop their own,” he said, noting that beyond consumer preference, the economics is just as important for these companies. A gram of cannabis wholesale costs around $3 and four vape cartridges with extract can be filled with seven grams of cannabis. Since a cartridge sets for around $50 - “$21 becomes $200 retail."

The appeal for consumers is also a serious factor. Vape pens offer discretion to consume cannabis and is also believed by some to be seen as a healthier alternative to smoking cigarettes. Whether or not this is true is not known for sure. Even the FDA’s acting commissioner stated in an Oct 4th 2019 release that - “at this time, the FDA does not have enough data to identify the cause, or causes, of the lung injuries in these cases.”

This is where the debate circles back to and whether or not either side agrees with pushing cannabis’ legalization across the US is a good idea or not, most can probably come to terms with the fact that more research needs to be done on the issue behind these illnesses before policies are set in place. Legalizing cannabis across the US would make it substantially easier for companies to grow their business nationally and in turn, improve users’ access to a legal market, not an illegal one.

FULL DISCLOSURE: OrganiGram Holdings is a client of Stockhouse Publishing.

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