With vape sales constituting nearly a quarter of the U.S. cannabis market, Pablo Zuanic, senior analyst and managing partner at Zuanic & Associates, explores the fundamental trends, challenges, and opportunities in this dynamic sector in his latest report.
“Vape is the 2nd largest category in the US, after flower, and 3rd largest in Canada. We estimate total legal cannabis sales in the US in 3Q23 reached $7.2Bn, at retail, which would imply legal vape sales of $1.7Bn in 3Q23 (~$6.8Bn annualized),” he said.
Vape Sales Growth And Market Position
Vape sales grew by 3% year-on-year in the third quarter of 2023, making it the second-largest category in the US cannabis market, following flower, with a 24% segment share.
Across 11 states analyzed vape sales lagged slightly behind the overall market pace, growing by 3.2% during the same period.
Price Deflation And Disposable Segment
Price deflation and the rise of disposable vapes pose challenges. Despite sales growth, prices fell significantly, with Massachusetts and Michigan experiencing the most significant drops at 37% and 33%, respectively.
The increasing popularity of disposable cannabis vape products may trigger regulatory challenges.
“The most substantial price declines occurred in Massachusetts (37%) and Michigan (33%). In other states, prices also saw significant reductions, with a 22% decrease in Illinois and Colorado, and mid to high teens drop in Nevada, Arizona, California, and 6-10% reductions in Oregon and Washington,” Zuanic wrote.
“Despite these price decreases, there are still notable variations in vape prices among states. Leading the charts are Illinois ($66 per equivalent gram), Maryland ($54), and Massachusetts and Nevada ($49). The most affordable options can be found in Michigan at $15, with Washington at $20 and Oregon at $23.”
State Variations In Vape Penetration
Vape penetration varies significantly by state, with more mature markets such as California and Colorado showing higher rates, while “newer” markets like Massachusetts and Michigan have lower penetration.
Pennsylvania stands out with 37% vape penetration.
Rise of All-in-Ones (AIOs)
All-in-one disposables are gaining market share at the expense of traditional cartridges in states like California, where they have seen a significant uptick in sales.
AIOs outperformed cartridges in terms of sales growth in most states, except for Illinois and Nevada.
“In California, the largest cannabis vape market, all-in-one disposables rose to over 23% of sales in the third quarter of 2023, up from 15% in the same period in 2022 and 11% in the third quarter of 2021. All-in-one disposables also saw a significant 39% year-on-year sales increase in the third quarter of 2023, with an impressive 92% growth over a two-year period,” Zuanic wrote. “During the same quarter, overall vape sales in California reached $291 million (data from Headset), marking a 10% year-on-year decrease, largely in line with the overall California market, where the vape segment represents 26% of the total market.”
“Notably, while all-in-one disposables surged by 39% year-on-year in the third quarter of 2023, traditional cartridges saw a 19% decline or a 21% decrease over a two-year period. Similar trends are observed in other states, except for Illinois and Nevada.”
Local Brand Fragmentation
The vape segment lacks distinct national brands, with most brands being local, except for a few exceptions like STIIIZY and Select.
Licensing and multi-state operator (MSO) penetration vary, and the top brands hold modest market positions in multiple states. House brand penetration varies significantly, with higher percentages in Massachusetts, Maryland, and Arizona.
Vape Parts Suppliers
The report categorizes vape parts suppliers into three groups: CCELL distributors
SMORF, Advanced Vapor Devices (AVD), and ALD, the supplier for STIIIZY.
The US market opportunity for vape parts suppliers is estimated at around $700 million, with the global market being even larger.
Market Share Trends Among Suppliers
The CCELL distributors, such as Jupiter Research TLLTF and Greenlane Holdings GNLN +3.87% + Free Alerts, have reportedly lost shares to AVD, ALD, and other smaller suppliers.
Estimates suggest CCELL’s share has fallen from over 80% to around 40% in the last four years, with some of this shift attributed to MSOs diversifying their suppliers.
While CCELL has faced significant share erosion, it is expected to innovate and manage margins effectively to potentially regain some of the lost market share.
The report suggests that, with the growing cannabis market, opportunities are vast for vape parts suppliers and potential industry innovations.