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Vape product concerns weigh on Canadian cannabis companies looking for sales boost

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TORONTO (Reuters) – A U.S. suggestion that buyers keep away from vaping merchandise containing the energetic ingredient in marijuana forward of their legalization in Canada subsequent month might be a blow to Canadian cannabis companies’ hopes that the higher-margin merchandise will assist propel them to profitability.

FILE PHOTO: An worker prepares an order for a buyer on the Fire and Flower retailer as the primary authorized cannabis shops open within the province of Ontario, in Ottawa, Ontario, Canada, April 1, 2019. REUTERS/Chris Wattie/File Photo

The U.S. Centers for Disease Control and Prevention (CDC) mentioned on Friday that an investigation into 805 confirmed or possible instances of vaping-related respiratory diseases advised that merchandise containing THC, the psychoactive ingredient in cannabis, probably performed a task.

The heightened well being concerns come at a time when Canadian cannabis companies, whose share costs have tumbled over disappointing sales and provide and high quality hiccups, are investing thousands and thousands of {dollars} into marijuana derivatives, together with vape merchandise.

While retaining a cautious eye on U.S. developments, they’re betting that already strict Canadian laws will guarantee the protection of their merchandise.

The Horizons Marijuana Life Sciences Index ETF has dropped 54% since its Oct. 16 peak, the day earlier than grownup leisure use of cannabis flower and THC and CBD oils have been legalized. CBD doesn’t include the compound that will get individuals excessive.

The vaping concerns have contributed to latest declines, and can proceed to harm shares, mentioned Bruce Campbell, portfolio supervisor at Stonecastle Investment Management, which invests in cannabis shares.

“It’s a case of ‘shoot first, ask questions later’,” he mentioned. “(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 a lot as 30%, with many marijuana customers reverting to make use of of much less worthwhile flower and oil merchandise.  

While a shift away from Canada’s illicit cannabis vape market into authorized dried flower is optimistic from a public well being standpoint, extended uncertainty may harm authorized vape sales. 

“These illnesses … occurred using non-regulated products,” mentioned Jason Zandberg, analysis analyst at funding vendor PI Financial.

Investigators have pointed to vaping merchandise containing THC or vitamin E acetate, a thickening agent typically blended with THC oil within the illicit market, as potential causes of the rash of great lung issues.

“In theory, it should promote the legal market,” Zandberg mentioned. “But if you don’t have very aggressive education behind these products, a good portion of the population doesn’t see the difference.”

The laws that take impact on Oct. 17 bear in mind the rising well being dangers related to cannabis vaping. They prohibit components together with nutritional vitamins and coloring brokers, Health Canada, which regulates cannabis producers, mentioned in an e-mail.

The well being company added that it’s monitoring the state of affairs, and can take extra motion if wanted.

“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,” mentioned Brett Hundley, a cannabis analyst at Seaport Global.

If the federal government abruptly removes vape merchandise from the roster of expanded authorized cannabis choices, together with 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 mentioned.

Cannabis companies are trusting that adhering to Health Canada’s guidelines will present reassurance for traders and customers.

A spokesman for Canopy Growth Corp, Canada’s largest cannabis producer, in an e-mail, pointed to the significance of the regulatory frameworks for cannabis vape merchandise that Canada has in place.

Hexo Corp, one other Canadian firm with a wide range of cannabis merchandise, mentioned it’s centered on guaranteeing it’s compliant with Health Canada’s laws. Hexo is double testing its vape merchandise, James McMillan, vice chairman of enterprise improvement, mentioned in a cellphone interview.

Reporting By Nichola Saminather; Editing by Bill Berkrot


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