Vaping epidemic will not impact legal cannabis sales: GMP

The vaping epidemic that is commanding headlines currently will not impact legal cannabis sales, says GMP Securities, which convened a panel of experts to help arrive at the conclusion.

There’s been little impact of vaping-related illnesses on legal cannabis sales in the United States.

That’s according to a new report from GMP Securities on Monday which detailed discussions with industry representatives on vaping and the future of cannabis in the emerging US market.

The number of vaping-related illnesses in the US continued to rise last week with the Centers for Disease Control and Prevention reporting 1,479 cases of e-cigarette or vaping product use associated lung injury (EVALI), an uptick of about 200 from the week before. The illnesses, which so far have been linked to 33 deaths, have for the most part occurred in people who had vaped THC, the psychoactive compound in marijuana.

“The latest national and state findings suggest products containing THC, particularly those obtained off the street or from other informal sources (e.g. friends, family members, illicit dealers), are linked to most of the cases and play a major role in the outbreak,” writes the CDC.

“Our panelists mostly agreed the vaping-associated pulmonary injury issue could spur increased state regulation but held mixed views on the implication for acceleration of federal legalization…”

Findings up to this point have indicated that black market sources may be a primary culprit, where additives and/or vape cartridges may be leading to the lung injuries. The CDC has said that while investigation into the phenomenon is ongoing, the only way to ensure that a person is not at risk is to “consider refraining from use of all e-cigarette or vaping products.”

The outbreak has cast a pall over the cannabis sector in the US and Canada, where many companies see vaping as a key growth segment going forward. And while the impact on share prices has been notable, the overall effect on vape and cannabis sales appears to be small if not negligible, according to GMP Securities’ report.

GMP convened a panel of six executives “from the industry’s largest vape brands, product manufacturers, retailers and US multi-state operators” to get perspective on the issue.

The group said that tougher regulatory environments along with standardized testing across states in the US would help to cut down on black market sales and use, but they also claimed that the vaping-related illness phenomenon had “little impact” on their vape sales category overall, while some customers seemed to be substituting vapes for flower, pre-roll and edibles, effectively creating a neutral impact on total cannabis sales.

“Our panelists mostly agreed the vaping-associated pulmonary injury issue could spur increased state regulation but held mixed views on the implication for acceleration of federal legalization,” writes GMP Securities analyst Robert Fagan. “However, all panelists appeared to welcome further regulation as a means to distinguish their compliant operations, and position to benefit from [vaping-related illnesses]’s potential to drive more customers from the illicit market to the regulated channel.”

“…Should flight-to-quality partly insulate stronger brands from vaping-related illness (as per our panel), we believe this provides a positive read-through for our US cannabis coverage universe, which features some of the industry’s largest, well-known operators…”

GMP backed up the claim of little impact on the industry by pointing to data from the US Departments of Health which suggest that US cannabis sales across several large markets including Florida, Illinois, Arizona and Maryland have not been strongly affected.

“We estimate retail sales in FL, IL, AZ, & MD grew at an annualized rate of ~80 per cent on average as of September, down only ~10 per cent from ~90 per cent annual growth generated over June, July, and August 2019,” writes Fagan.

Fagan suggests that the industry may in fact experience a ‘flight-to-quality’ movement as consumers turn away from the black market.

“While we remain in the early days of , we are encouraged by the manageable impact some states’ data is showing thus far, as we note this data still points to robust annual growth rates continuing. In addition, should flight-to-quality partly insulate stronger brands from vaping-related illness (as per our panel), we believe this provides a positive read-through for our US cannabis coverage universe, which features some of the industry’s largest, well-known operators,” Fagan says.