Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | Vaping and electronic cigarettes (e-cigarettes) were originally developed to create a less-carcinogenic alternative for the large population of adults that smoke cigarettes, however, according to the CDC, there has been 450 possible cases of lung problems related to e-cigarettes, including at least six deaths, this year.
Vaping is an alternative to burning and consuming tobacco and is done through an e-cigarette that uses heat to convert nicotine concentrated oils into inhalable vapor. E-cigarettes have been promoted by vaporizer companies as a less-harmful alternative to tobacco products, and often is pushed towards individuals who are trying to quit cigarettes and have failed with alternatives such as nicotine patches and chewing gums.
Many of these illnesses regarding e-cigarettes were not all tobacco and nicotine related, as cannabis oil is often used for vaporizers. This raises concerns for cannabis extraction companies who are preparing for the legalization of cannabis alternative products in Canada next month. MediPharm Labs Corp. (TSXV: LABS; OTCQB: MEDIF, DB: MLZ), a cannabis company focused on extractions, recently made a partnership to produce a minimum of 2 million vaporizer pens for cannabis.
In a recent analyst article, we wrote about Canopy Growth Corp. (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1), the largest cannabis company in the world by market cap, who announced that it has received an extraction license from Health Canada for its KeyLeaf Life Sciences facility in Saskatchewan, which is expected to have an extraction capacity of 5,000 kilograms (kg) per day. Canadian cannabis companies have made significant investments in extraction equipment in preparation for the legalization, set to come into effect next month, of alternative cannabis products that includes THC-infused vaping cartridges and oils.
Today, U.S. President Donald announced a crackdown on e-cigarettes and the removal of all non-tobacco flavored products from the market until the companies get approval from the Food and Drug Administration (FDA). In addition, recently the FDA has been targeting vaporizer companies due to marketing campaigns that cater towards teenagers, which has proliferated a social trend for vaping in the youth scene.
Under the FDA, there is no approval for the claim that e-cigarettes are safer than tobacco products, but companies such as Juul, an e-cigarette company that is 35% owned by Altria Group Inc. (NYSE: MO; LSE: 0R31; DB: PHM7), one of the largest cigarette manufacturers, received a warning letter from the FDA to stop marketing its product to be “99%” safer than tobacco products with consequences in fines, seizures, and injunction if warnings are not followed.
According to the Centers for Disease Control and Prevention (“CDC”), between 2017 and 2018, the number of high school students that used e-cigarettes increased by 78% to 3 million, with over 20% of all high school students in the U.S. using e-cigarettes. In 2018, 1 in 5 high school students and 1 in 20 middle school students used e-cigarettes, which is causing serious concerns for parents, teachers, doctors, and governments.
The quick rise in youth e-cigarette usage in the U.S. between 2017 and 2018 is mainly attributed to the recent popularity of Juul’s e-cigarette, which is shaped like a USB flash drive, and was initially promoted with hip, flashy marketing and dessert flavors.
Throughout 2018, as prevalence of youth vapers grew, Juul was constantly criticized by governments, regulators, and health officials for directly targeting youth with a health detrimental product.
By the end of 2018, there were no more colorful marketing campaigns nor were there any more flavors that may have catered to youth, but instead Juul is now using a darker themed marketing campaign with older people and a messaging that caters to current cigarette smokers rather than adolescents.
It will be interesting to see what the direct cause of vaporizer related illnesses is and, if the negative press and concerns over e-cigarettes will carry over to vaporizers that use THC oils and not nicotine.
Until more facts are learned, could Health Canada delay the introduction of cannabis vape products that are set for legalization in Canada next month?
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Altria Group Inc. (NYSE: MO; LSE: 0R31; DB: PHM7)
- Headquartered in Virginia, U.S., Altria, previously known as Phillip Morris Companies, Inc., is the world’s largest tobacco cigarette producer.
- In December 2018, Altria offered US$12.8 billion to acquire 35% ownership of Juul Labs which combined the largest cigarette company with the largest vaping company.
- Altria is currently trading at US$44.38 per share with a market capitalization of US$89.9 billion.
Canopy Growth Corp. (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1)
- Headquartered in Ontario, Canada, Canopy Growth Corp. is the world’s largest cannabis company, based on market capitalization.
- Canopy was the first company to export cannabis to Germany, the first to make a partnership with a global beverage company, and the first to have an agreement to acquire a U.S.-based cannabis company.
- Canopy is currently trading at C$35.51 per share with a C$12.4 billion market capitalization.
MediPharm Labs Corp. (TSXV: LABS; OTCQB: MEDIF, DB: MLZ)
- Headquartered in Barrie, Canada, MediPharm is a medicinal cannabis company that produces pharmaceutical grade and GMP certified cannabis oil products, and supplies raw materials, formulations, processing, and packing for the creation of ready-to-sell derivative products.
- MediPharm is currently trading at C$5.06 per share with a market capitalization of C$657 million.
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