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 The U.S. Centers for Disease Control and Prevention (CDC) said on
Friday that an investigation into 805 confirmed or probable cases of
vaping-related respiratory illnesses suggested that products
containing THC, the psychoactive element in cannabis, likely played
a role.
The heightened health concerns come at a time when Canadian cannabis
companies, whose share prices have tumbled over disappointing sales
and supply and quality hiccups, are investing millions of dollars
into marijuana derivatives, including vape products.
While keeping a wary eye on U.S. developments, they are betting that
already strict Canadian regulations will ensure the safety of their
products.
The Horizons Marijuana Life Sciences Index ETF has dropped 54% since
its Oct. 16 peak, the day before adult recreational use of cannabis
flower and THC and CBD oils were legalized. CBD does not contain the
compound that gets people high.
The vaping concerns have contributed to recent declines, and will
continue to hurt shares, said Bruce Campbell, portfolio manager at
Stonecastle Investment Management, which invests in cannabis stocks.
"It's a case of 'shoot first, ask questions later'," he said.
"(Investors) probably do some quick back-of-the-envelope math and
say, 'we're not going to see the sales we expected, so we're out'."
Analysts estimate that in some established U.S. markets, vape sales
are down as much as 30%, with many marijuana consumers reverting to
use of less profitable flower and oil products.
While a shift away from Canada's illicit cannabis vape market into
legal dried flower is positive from a public health standpoint,
prolonged uncertainty could hurt legal vape sales.
"These illnesses ... occurred using non-regulated products," said
Jason Zandberg, research analyst at investment dealer PI Financial.
Investigators have pointed to vaping products containing THC or
vitamin E acetate, a thickening agent often mixed with THC oil in
the illicit market, as possible causes of the rash of serious lung
problems.
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"In theory, it should promote the legal market," Zandberg said. "But
if you don't have very aggressive education behind these products, a
good portion of the population doesn’t see the difference."
The regulations that take effect on Oct. 17 take into account the
emerging health risks associated with cannabis vaping. They prohibit
additives including vitamins and coloring agents, Health Canada,
which regulates cannabis producers, said in an email.
The health agency added that it is monitoring the situation, and
will take additional action if needed.
"The Canadian government should come out as soon as possible one way
or other and either double down on vape products or remove them from
the derivatives market. You have to give the industry clarity," said
Brett Hundley, a cannabis analyst at Seaport Global.
If the government suddenly removes vape products from the roster of
expanded legal cannabis offerings, including edibles and extracts,
"that’s going to reverberate back through the supply chain and it’s
going to lead to a whole host of near-term issues" for these
companies, Hundley said.
Cannabis companies are trusting that adhering to Health Canada's
rules will provide reassurance for investors and consumers.
A spokesman for Canopy Growth Corp, Canada's biggest cannabis
producer, in an email, pointed to the importance of the regulatory
frameworks for cannabis vape products that Canada has in place.
Hexo Corp, another Canadian company with a variety of cannabis
products, said it is focused on ensuring it is compliant with Health
Canada's regulations. Hexo is double testing its vape products,
James McMillan, vice president of business development, said in a
phone interview.
(Reporting By Nichola Saminather; Editing by Bill Berkrot)
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