Welcome to my weekly newsletter on the cannabis and psychedelics industries. As a reporter who also sometimes covers tobacco, parallels between the two industries have always been intriguing.
Tale of Two Vapes
Cannabis vaping is around the same size as the market for tobacco vaping in the US — yet the two industries are on very different trajectories.
New restrictions on tobacco vaping showed how federal legality can be a curse rather than a blessing when it comes to the business of recreational drugs. While the cannabis industry is holding out hope for federal legal changes — potentially with a rescheduling of the drug by classifying it as less risky — its vape sector seems to benefit from a lack of regulation.
The tobacco industry has been around for over a century, but in recent years new health studies have brought the threat of regulatory crackdowns on nicotine levels, flavored products, youth use, and disposable vapes.
Last week, British American Tobacco, a 121-year-old maker of cigarettes that has strived for years to switch smokers to nicotine vaping on the grounds that it could reduce their health risks, suffered a significant blow: The US Food and Drug Administration said it can’t sell flavored vape products under the Vuse Alto brand. One of the top-selling brands in the US, the products came in menthol and mixed berry flavors. It’s just the latest difficulty in the US market for vaping, where other companies like Juul Labs Inc. and Altria have also faced increasing regulatory challenges.
While nicotine vape use is growing, such challenges have kept e-cigarettes a relatively small portion of the tobacco market. Though they’ve been around in the US for slightly more than 15 years, the market was worth around $6 billion last year according to data firm Euromonitor International, a tiny sliver of the overall tobacco market of $144 billion, which includes other products like cigarettes, cigars and smokeless tobacco.
Cannabis vape, which is a much newer market limited by federal marijuana prohibition, is already around the same size — with around $6.8 billion in sales expected this year, according to an Oct. 10 report from Zuanic & Associates. The research firm, run by analyst Pablo Zuanic, estimates that vape sales are second only to raw marijuana flower, and make up about a quarter of the entire US cannabis market. That’s a much greater ratio than vaping’s share of the nicotine market.
Those numbers most likely underestimate the extent of cannabis vape, given the strength of the illicit market, which is difficult to track.
The trajectory of cannabis vape is very different from nicotine vape. With only state-by-state cannabis legalization, there’s no federal regulator involved though the sector has faced scrutiny for counterfeit products and recalls due to chemical contaminants, as well as the risk of addiction from high-THC products. That begs the question of not if, but when, the market will face more regulation.
Meanwhile, some of the same companies that make parts for nicotine vape see huge potential. The US market alone is a $700 million opportunity just for vape parts suppliers, Zuanic estimates.
China-based Smoore International Holdings Ltd.’s CCELL unit is one of the top technology companies in the space, according to the Zuanic report. Advanced Vapor Devices, a private US company with the bulk of its supply chain in China, is also a leading parts supplier, and has recently gained market share. Another leader in the space is Ispire, a vape parts supplier headquartered in China that recently listed on the Nasdaq.
Zuanic also notes the recent rise of one of the more controversial forms of vape technology — disposable vapes — threatens to bring on more regulation. The nicotine versions of them have been banned in New Zealand, and Euromonitor’s research notes they face similar restrictions in Germany, France and the UK.
Not only are there concerns about the lithium batteries and plastic casings that get discarded with every use of disposables, they’re also said to appeal more to young consumers with their bold flavors, Euromonitor said.
Number of the week 64%
The ratio of total US cannabis sales captured by the illicit market in 2022, versus 86% in 2017, according to a Bloomberg Intelligence report citing data from market researcher BDSA.
Quote of the week
“California should immediately begin work to set up regulated treatment guidelines — replete with dosing information, therapeutic guidelines, rules to prevent against exploitation during guided treatments, and medical clearance of no underlying psychoses. Unfortunately, this bill would decriminalize possession prior to these guidelines going into place, and I cannot sign it.”Gavin Newsom
Commenting on his veto of a bill that would have decriminalized psychedelic drugs, according to an AP News article.
What you need to know
- What’s it like to start a dispensary in New York? This podcast tells the story of entrepreneurs who’ve been unable to open on schedule.
- US legal marijuana sales could encroach on the illicit market, according to a report from Bloomberg Intelligence.
- Recreational marijuana legalization initiatives in Ohio and Florida, with a combined population of 34 million, could boost legal sales in the US, according to a note from Bloomberg Intelligence.
- Research into use of cannabinoids and psilocybin for possible medical treatments is proliferating, while market attitudes are becoming increasingly receptive to these novel approaches to treating diseases, Bloomberg Intelligence’s video discussion finds.
- Federal workplace drug testing guidelines have been revised to clarify that using medical marijuana under a doctor’s recommendation in a legal state is not a valid excuse for a positive THC test.