State of the Cannabis Market
Currently 37 states, the District of Columbia, Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands have legalized medical marijuana programs. 19 of those states and DC have approved cannabis for legal adult consumption. This month the industry data research and analytics firm, Headset, forecast that the U.S. legal cannabis market will surpass $30 billion in sales next year. How well the cannabis industry performed during the COVID-19 crisis has shown traditional financing sources that the cannabis industry exhibits recession-proof qualities.
With capital flowing much more freely into the category Pitchbook is seeing dramatically rising median post valuations and deal sizes in privately owned cannabis companies backed by VC or PE investment as we progress into this very active year…
The Rapid Sales Recovery of Vaping
Keeping up with the trend of the cannabis industry’s hockey stick trajectory globally, vaporizers – battery powered devices for aerosolizing THC and CBD oils – exceeded $21 billon sales in 2020, are expecting to grow to nearly $50 billion by 2024, and may already be exceeding that record-setting pace this year.
According to TMCNet.com:
Indeed, the vape industry’s growth has been so emphatic that by 2027 the global eCigarette industry is predicted to be worth an enormous $67 billion. The impressive growth of the industry has been largely driven by the public’s enthusiasm for quite smoking, with around 54% of vapers being ex-smokers in 2019.
Vaping is, of course, a consumer-inspired creation to the problems related to smoking combustibles. Advocates promote vaping as an alternative to smoking because:
- Vaping marijuana involves no combustion, or burning. Users exhale vape aerosol completely free of the carcinogens found in tobacco cigarette smoke.
- Vapes do not create the harmful tar that causes cigarettes to be so hazardous to public health.
- Vape liquids do not contain the wide range of dangerous chemicals present in traditional cigarettes.
- In terms of pesticides, for instance, Raw Garden claims their vape cartridge is cleaner than organic strawberries.
While smoking is still the dominant method of cannabis consumption, now the old standard, cannabis flower, is giving way to products made from distillate and oils – all designed, by the way, to avoid smoking. Green Tank compared the popularity of the 3 alternatives that are on a path to eventually overtake smoking cannabis flower – vapor pens, edibles, and cannabis-infused beverages. Of those three, vapes are the fastest growing trend in cannabis, exhibiting the qualities of control and consistency, portability, and perhaps the major factor, effects that are felt most quickly. The oxygen exchange in the lungs is much faster than ingesting.
Statistics from BDS Analytics show that sales of THC vape cartridges peaked in the summer of 2019. Then, however, the VAPI crisis hit and sales plummeted, while public and regulator outrage sky rocketed. During that summer 68 users were reported killed as a direct result of the lung damage from vaping and over 2,800 others were severely injured. The CDC intervened and labeled the problem an epidemic. VAPI, though, turned out to be non-infectious. And, after a thorough investigation by the cannabis industry information resource, Leafly, it was substantiated that toxic cutting agents in vape cartridges sold on the illicit THC market were to blame. THC oil had been diluted with high amounts of cosmetics creams, vitamin E oil and squalene. Testing vapes manufactured in legal states proved them to be ten times safer than those available from illegal sources.
Once the vapes from the illicit markets were identified as the root of the problem, the legal industry responded to the consumer demand that no additives or cutting agents be used in the manufacturing process. This has calmed the fears of established vape customers and does not appear to be a deterrent to the new customers coming into cannabis use.
Is Their Another Hurdle in the Path of Sustained Growth?
There remain reasons for caution as our investors seek guidance from us regarding entering the cannabis industry. After all, there was the vape scare in 2019 that looked like a substantial industry setback. The following provides insights on how the industry responded and what may still be another unforeseen challenge likely to test the versatility of the industry and affect the value of your investment in a cannabis entity.
Beginning in the ‘70’s, Big Tobacco ignored warning signs that a crisis of far-reaching proportions would shake their industry to its foundation. That crisis, the specter of secondhand smoke. The tobacco industry has paid a high price for not addressing the issue effectively. Now, consumer advocates are beginning to put vapes under the same microscope – to determine any potentially harmful effects of secondhand smoke from the use of vaporizer devices.
There are, of course, major differences between vape “smoke” and cigarette smoke. Primarily, vape “smoke” is not smoke, since there is no combustion. More properly, vape smoke can technically be classified as an “aerosol.” Vaping devices produce clouds of vapor, which are generated by heating the e-liquid with an atomizer. The atomizer has a small metal coil which turns the liquid into vapor. Cannabis vapes contain none of the tars, nicotine, carcinogens emitted by cigarettes; none of the nicotine contained in eCigarettes. Consumer studies have found, nonetheless that vape aerosol may contain harmful particulates.
AA Pain Management clarifies that:
The vapor you see comes from the lungs and mouth of the vaper. To produce smoke, the individual has to inhale to release it. When they release into the air, the least amount of particles are present since the individual itself absorbs the majority of the substances. Secondhand vaping isn’t as dangerous as second-hand smoking because the bystanders get exposed to a minimal amount. Studies revealed that secondhand vaping had shown the levels of the chemicals much less than the exposure limits.
Nevertheless, with public sensitivity aroused, the stigma of secondhand smoke makes many vape users feel uncomfortable in public settings. And non-smoker advocacy groups, led by the American Non-Smokers’ Rights Foundation, (ANRF) are amassing evidence relating to the harmful potential of secondhand smoke from cannabis vape pen devices.
The ANRF states in their marijuana secondhand smoke policy:
Be prepared! Nobody should have to breathe secondhand marijuana smoke at work or where they live, learn, shop, or play. Smoke is smoke and marijuana smoke is a form of indoor air pollution. Therefore, it is important to strengthen all smoke-free laws – both existing and new – to include marijuana in the definitions of smoking and vaping.
Several peer-reviewed and published studies indicate that exposure to secondhand marijuana smoke can have health and safety risks for the non-smokers, especially due to its similar composition to secondhand tobacco smoke. Among their findings are:
Particle concentrations from dabbing and vaporizing cannabis can create levels of indoor air pollution similar as those seen in extreme air pollution events like wildfires and severe industrial pollution. Exposure at these concentrations can cause cardiovascular and respiratory disease.
The Foundation is seeking to ensure that more smoke-free legislation is passed by the state and local governments defines “smoking” as including cannabis and electronic smoking devices. This so that:
Nonsmokers should not have to breathe other people’s secondhand marijuana smoke or vaped aerosol in smoke-free spaces like workplaces, public places, and apartment buildings.
Does Science Have A Cannabis Industry Solution?
If whatever you put into a vape pen is, indeed, converted to a gas that could have a harsh aroma and contain potentially harmful particulates, what does the industry have to offer to protect their customers. Primarily, the products being offered are either air purifiers or ventilation systems.
The ANRF, however, has this policy about ventilation being the answer to the problem:
The science is clear. Ventilation systems or air cleaning technologies may reduce odor, but they do not address the serious health risks caused by secondhand smoke exposure. Research is showing that negative health impacts, especially to the cardiovascular system, occur quickly even at extremely low levels of exposure to secondhand marijuana smoke.
Filtration Technology Provides a Solution
A potential solution for vape users is a variety of filter devices that are designed to reduce the amount of aerosol emitted. While these devices vary in size and ability to reduce the amount of the cloud of aerosol, one company claims to contain all smoke, odor, and any potential particulate completely. Philter Labs offers a series of vape filters that are compact, fit any vape pen and are said to reduce exposure of others to vape aerosol by up to 97%.
Users exhale into the device, which is what cuts down on the odor and exposure to secondhand vapor. The company has created several filtering devices for vapes (which applies, by the way, to both nicotine and cannabis vapes). All the filters use nanofiltration technology to cut down the particulate matter that may be contained in vape clouds.
The company describes its patented technology behind these claims as:
Through aerodynamic science, the team at Philter Labs is able to create chemical change and break down exhaled aerosol on a molecular level. This technology allows us to create an effective system in an incredibly small form factor by using less materials and keeping our waste down, put performance level up. Through this exclusive five-state system, we are able to systemically and fundamentally break down and remove particles and odor.
According to Co-founder/CEO Christos Nicolaidis, “as a catalyst for necessary and impactful social and environmental change, Philter offers viable, adaptive products that encourage conscientious, universally acceptable vaping practices to honor those who choose not to participate while simultaneously respecting the rights of those who do.”
While the cigarette industry in the ‘70’s chose to downgrade the issue, science is advancing in vape segment of the cannabis industry as a competitive advantage for those manufacturers that choose to effectively address an issue now that is every bit as threatening as the crisis encountered in 2019. We see filtering technology gaining traction in the CBD industry as well that we’ll be reporting on in a future issue of the EDGE Briefing.
Currently 37 states, the District of Columbia, Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands have legalized medical marijuana programs. 19 of those states and DC have approved cannabis for legal adult consumption. This month the industry data research and analytics firm, Headset, forecast that the U.S. legal cannabis market will surpass $30 billion in sales next year. Keeping up with the trend of the cannabis industry’s hockey stick trajectory globally, vaporizers – battery powered devices for aerosolizing THC and CBD oils – exceeded $21 billon sales in 2020. Sales are expecting to grow to nearly $50 billion by 2024, and may already be exceeding that record-setting pace this year. The vape segment has rebounded from potential disaster in mid-2019 when deaths among vape users shattered sales until it was substantiated that vapes from the illicit market, not at all from the legal market, were to blame. Vapes have now become the fastest growing product segment in the cannabis industry. Yet is another hurdle looming? The segment is facing the potential crisis of secondhand smoke. Science is racing to provide solutions in the form of filter technology. Investors are advised in their due diligence process to examine the strategy a company has for this inevitable issue as a vital evaluation criterion.
How We Can Help
The critical factors in assessing the potential of the array of opportunities in the industry still require careful execution of the basics of investment analysis:
- Due diligence for understanding the full scope of the business in the industry segment being targeted.
- Analyzing the preemptive nature of the target’s business model.
- Determining the soundness of the financial statements, particularly in cases where they are yet to be audited.
- And assessing the zeal of the team charged with the task of growing a company into a multimillion-dollar operation.
At Highway 33 Capital Advisory we excel at structuring deals to meet client investment strategies in emerging 2021 opportunities with our core expertise in Cannabis and other highly regulated markets in the fields of Pharma, Biotech, Healthcare, Agtech, Clean/Climatetech, and CBD/hemp companies. We specialize in thoroughly vetted companies looking to drive growth and enterprise valuations through M&A, non-dilutive debt financing and/or capital investments. We stand ready 24/7 to provide the guidance our clients seek.
Let’s talk about putting the power of this expertise to work for you as a Sell-side or Buy-side client.