September 24, 2019

Sales of Concentrates Have Skyrocketed Over the Past Year

The recent, rapid rise in the number of individuals who have fallen ill or even died after vaping cannabis or nicotine products has the potential to seriously impact the market landscape of the legal cannabis industry from the standpoint of demand, as well as raising possible supply chain and regulatory considerations.

The Washington Post reported last week that at least six people are thought to have died as a result of vaping cannabis or nicotine products, while another over 450 people in 33 states have suffered lung illnesses.

According to a report from Oregon Public Broadcasting (OPB), “Many, though not all, of the patients who have fallen ill had used cannabis-derived vaping products, and some had also used nicotine-containing products. A smaller group reported using nicotine only.” Both the reports cited, as well as other outlets, have noted that health officials suspect that contaminants or adulterants in vape products are behind the illnesses and deaths. Vitamin E acetate has been identified in several cases as a possible culprit.

However, the OPB report states, “no single product or substance has been definitively tied to the respiratory illnesses,” and the Centers for Disease Control and Prevention (CDC) is recommending that people avoid vaping and e-cigarettes until the investigation concludes and a cause or causes are identified. While vape products containing THC purchased on the illicit market have been linked to several of the illnesses, one of the deaths occurred in Oregon, where officials have confirmed that the individual in question previously made purchases from two licensed cannabis retailers, according to Willamette Week.

The Willamette Week report quotes state officials as saying that at this time they are not certain that the products purchased at licensed retailers can be linked definitively to the individual’s illness and death.

Depending on the outcome of current investigations, it is possible that demand for vape products in legal cannabis markets could contract. Such products have seen very strong growth in recent years and in some state markets have been a primary driver of overall sales growth. For example, in Colorado, data from the state Marijuana Enforcement Division (MED) says that the number of units of concentrates sold to consumers increased by 78% from 2017 to 2018, while flower sales volume grew by only 6% in the same span. In Oregon, the number of units of extracts and concentrates sold in August 2019 rose to a record high of around 965,000, a figure that is up by about 45% year-over-year.

Again, much depends on the determinations made by federal, state, and local health officials in their current investigations, as well as how long the investigations are ongoing. If the investigations are able to be concluded relatively quickly with a concrete, fixable cause identified, it is possible that demand for vape products could decline only in the short term, or perhaps not at all. However, if investigations drag on and certain chemicals or other substances that are in widespread use by vape product manufacturers are found to be behind the current emergency, then demand could be impacted more broadly and for a longer period. There is also the possibility that vape products in legal cannabis markets could be recalled or quarantined by officials.

If demand for vape products is impacted, it is reasonable to assume that demand for flower or edibles, or both, could increase concurrently. It should also be pointed out that the fall cannabis harvest is approaching. Processors frequently use the harvest season as an opportunity to secure large volumes of plant material for relatively low prices. Yet, if demand for vape products subsides and is expected to remain low then demand for the production of outdoor, greenhouse, and hoop house growers could wane. However, processors could still buy up sizeable amounts of plant material for extraction and use the extracts in edibles and other products that will not be vaped or otherwise heated and inhaled.

In addition to the possibilities of recalls and product quarantines, longer-term regulatory responses could include increased testing, as well as prohibitions on certain additives or even certain parts of the hardware of vape pens and cartridges themselves.

Finally, depending on the cause of the illnesses and deaths, it is possible that cannabis processors and product manufacturing companies could have to reconfigure their operations and their supply chains. Many producers of vape products source hardware from Chinese manufacturers, who are not subject to strict scrutiny for the quality and safety of their products. Reports out of California and Michigan earlier this year claimed that cannabis consumers may be exposed to lead and other heavy metals from faulty or cheap cartridges that hold the cannabis oil, or from other parts of the pens that heat the oil into an inhalable form.

In the meantime, some impacts to legal cannabis markets are occurring, mainly in Oregon. Late this week, Oregon regulators sent a letter to licensees asking processors and retailers to voluntarily take some precautionary measures. The letter asks that processors remove from sale any products that contain vitamin E oil, tocopheryl acetate, or alpha-tocopherol. Additionally, the letter states, “Now is the time to report any undisclosed additives so the Oregon Liquor Control Commission (OLCC) and our retailers can identify these products, remove them from sale, and prevent further potentially dangerous consumption. Continuing knowledge of unreported Vitamin E in vape products could lead to serious legal complications.” The letter also asks retailers to review products and remove from circulation those that might be of public concern.

Prior to the OLCC’s letter being circulated, Willamette Week reported that a Portland-based company that produces and sells cannabis extracts and concentrates for vaping pulled a line of products from circulation due to the fact that they contained vitamin E acetate. A report published on Thursday, September 12, by the Associated Press stated that some Oregon retailers had already begun pulling vape products from their shelves and were offering returns for previously sold merchandise.

Prior to this point, the legal cannabis industry has not been implicated in any serious public health issues resulting from the products that it manufactures and sells, despite the fact that there is little to no conclusive data on the acute or long-term effects of many of the novel and higher-potency products that have been developed since legalization. Like much in legal cannabis systems, the current vaping crisis represents uncharted territory for consumers, businesses, and regulators, with its ultimate outcome and impact on regulated markets highly uncertain until more information comes to light. Depending on the types of sales data released in each state market, any potential impacts on demand will not be able to be evaluated until October or November at the earliest