Vaping Crisis Presents Risks and Opportunities for the Cannabis Industry

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The recent news of deaths and illness tied to vaping has brought a lot of attention to a large and rapidly growing part of the cannabis industry, whether it is deserved or not. While the crisis is tied primarily to e-cig liquids or illicit market cannabis concentrates, there have been some limited issues reported in the regulated cannabis industry as well. While this may seem like a new issue to many, the truth of the matter is that our industry has been plagued for years by quality issues related to vaporization devices and extracted products.

In the early days, there were many cheap disposable vape pens that had lead or other contaminants and concentrates that were thinned with questionable agents. The state-regulated markets and better consumer awareness have helped address these quality issues since then. In fact, California implemented very strict testing standards for cartridges earlier this year.

There is little doubt that the current news is impacting the sector, even if it shouldn’t. As BDS Analytics reported in July, vape products not only make up about 1/3 of the overall market by sales, they also represent the fastest growing product category. There is a lot at stake here. Many fear that the highly popular concentrates will lose favor with consumers. Further, some expect that states may move to restrict or even ban the form of consumption, with the potential for federal regulatory involvement as well. Given federal illegality, it seems unlikely that any e-cig regulations would be imposed by the federal government on the cannabis industry, in our view. At the state level, there might be a greater harm in banning concentrates, as this would likely lead to substitution with smoking, which is viewed as potentially more harmful. Many states don’t permit smoking for this reason in their medical programs.

We think that this is a great opportunity for responsible companies in the industry to educate consumers and regulators, and we have seen substantial evidence of this happening already. Many of the MSOs have communicated with their customers about the composition of their concentrates, and we think better disclosure will go a long way towards alleviating consumer concerns over time. KushCo Holdings, which is a major distributor of vape cartridges, published an overview of the current situation that concludes the crisis could lead to some positives for the industry, including a move from the illicit market to the legal market as consumers begin to understand better the lack of safety in the illicit market, a migration from inferior products to superior products provided by trusted vendors for cannabis operators and more state regulation, which would help drive even more confidence.

Considered to be the first North American Operator (NAO) with a focus on creating differentiated products, TerrAscend participates in the medical and legal adult use market across Canada and in several U.S. states where cannabis has been legalized for therapeutic or adult use.

TerrAscend, which reported C$17.6M of revenue in Q2, upped its full-year guidance to C$141M from C$135M. Since then, TerrAscend has completed the acquisition of Ilera Heathcare, entered into a distribution agreement to distribute Syqe in Canada and is well capitalized with a recent warrant exercise of $31M.

To learn more, visit TerrAscend’s Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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