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, country after country are criticizing the e-cigarette regarding health concerns and increasing prevalence of vaping activities in minors.
Juul Labs Inc, partially owned by Altria (NYSE: MO), known for its popular e-cigarette shaped like a USB stick, has been under criticism from governments, schools, hospitals, and regulatory bodies for: (1) targeted marketing towards children with flavored juices and colorful advertisements, (2) claims stating that vaping is healthier than cigarettes without Food and Drug Administration (“FDA”) approval, (3) and multiple cases of vaping-related illnesses and deaths.
As concerns for vaping grows, numerous parties are now specifically targeting Juul for contributions to the teen vaping epidemic including the U.S. House Subcommittee on Economic and Consumer Policy, the Federal Trade Commission, and the FDA.
This week, a criminal probe in the U.S. entered its early stages with Juul instigated by Federal prosecutors in California.
As Juul struggles in the U.S., the rest of the world is following suit, quickly regulating e-cigarettes, including China and India who in the past week abruptly halted sales of Juul products in their countries.
Below is an update on major countries affected by vaping:
According to the Centers for Disease Control and Prevention, there has been 7 confirmed deaths and 530 injuries related to vaping in the U.S. Last week, U.S. President Donald Trump announced a potential Federal ban on flavored e-cigarettes, which follows New York and Michigan states who have already banned flavored e-cigarettes earlier this month.
Last week, Canada reported its first severe vaping related illness leading to life support in London, Ontario. Ottawa’s Chief Medical Officer, with the support of the Board of Health, is asking Health Canada for stricter regulations and suggesting an outright ban on flavored e-cigarettes, citing data related to the growing prevalence of underage vaping. Health Canada is currently drafting new e-cigarette regulations to combat youth vaping.
India has approximately 100 million cigarette smokers, making it the second most populous smoking nation. Last week, following a white paper from the Indian Council of Medical Research citing the dangers of e-cigarettes, India has ordered a ban on the sale and production of all types of e-cigarettes, in an effort to protect children from addiction. Possession of e-cigarettes is now punishable for up to one year of prison for first time offenders including a US$1,400 fine, and up to triple the sentence for repeat offenders.
China is the most populous smoking nation in the world with over 300 million smokers. Similar to India, China recently banned sales of Juul products with plans to set out new regulations regarding e-cigarettes next month. Even so, according to China News Service, Chinese companies have been investing into the lucrative e-cigarette space with at least 1 billion yuan (US$140 million) invested in 2018.
According to Global Tobacco Control, 27 countries have made decisions to prohibit e-cigarettes. The list of countries with their respective regulations on e-cigarettes can be seen here: https://www.globaltobaccocontrol.org/e-cigarette/country-laws/view.
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 on October 17, 2019.
Mark Zekulin, acting CEO of Canopy Growth Corp. (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1), the largest cannabis company in the world, said “Market confusion is never good”. There is assurance in that Canada has a very regulated market compared to the U.S. but there is yet any evidence on the cause of current vaping related illnesses.
Last December, Altria Group Inc (NYSE: MO; LSE: 0R31; DB: PHM7), a parent company of Phillip Morris USA, the maker of Marlboro cigarettes, announced its entrance into the cannabis market with a C$2.4 billion investment into Cronos Group Inc. (NASDAQ: CRON, TSX: CRON). Only weeks later, Altria announced a US$112.8 billion investment into Juul to potentially leverage the e-cigarette maker’s vape technology for cannabis extracts.
Canadian cannabis companies are confident for the roll out of their alternative cannabis products next month, but concerns are growing now that Canada has a vaping related illness case as well.
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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 currently trades US$41.07 with a market capitalization of US$76.7 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$31.79 per share with a C$11 billion market capitalization.
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