By Cy Scott, Headset CEO.
The vape crisis has rocked both cannabis consumers and businesses in recent months. According to the CDC, a chief suspect in the hospitalizations and deaths is Vitamin E Acetate, a thickening agent used by manufacturers that is harmless as a topical, but poisonous when inhaled. Much of the products tainted with Vitamin E Acetate have been sold through the illicit market, but it has put the entire legal industry under the watchful eye of regulators and customers to ensure that the market is putting out safe and compliant products.
From an outsider’s perspective, it might seem like an opportune time to exit the vaping business. With the product category receiving a litany of scrutiny from the public, questions abound regarding vaping’s impact on the entire cannabis industry.
However, from the inside, the future of vaping may not be as discouraging as the media has portrayed it to be. Comprehensive sales data has clearly shown that the momentary decline in demand for vapes has not made a significant impact on the overall performance of the industry, despite the ongoing crisis.
Sales Impact on Vape & Other Categories
Since 2017, vapor pens have been one of the best-selling and fastest-growing product categories within adult-use cannabis. Vapor pen sales have outpaced total cannabis market growth over the past three years, accumulating $343 million in sales across California, Colorado, Nevada and Washington in the third quarter of 2019 alone. This growth stands in contrast to other inhalable categories, like flower sales, which have gradually declined in percentage of market share year-over-year.
Although recent press concerning Vaping Lung Disease has created considerable market volatility, there have been two positive trends in consumer behavior that retailers should be mindful of when making inventory decisions.
First, the general dip in vaping product sales has been offset by an increase in other categories. Media coverage of the vaping crisis ramped up during the week of August 12, 2019. Using that reference point, we can track the general decline in vape market (Fig. 1). We can also identify how distinct moments in time, like the Washington State emergency ban on all flavored vaping products announced in early October, have affected sales.
The negative impact on the market’s most popular product has made a marginal impact on overall sales. In fact, when we compare sales data from 2018 and 2019 from the beginning of the vape crisis through today, we see remarkable consistency (Fig 2). Weekly variances are driven primarily by seasonal considerations – for example, the Week 35 spike in sales which led to 4-5% growth coincided with Labor Day weekend. If the vape crisis indeed depressed category interest or sales, we would expect to see much greater downward variance in 2019 – particularly during Weeks 32 to Week 36, which experienced the most intense coverage during the vaping crisis.
What’s filling the vaping gap? Edibles and pre-rolls primarily. Since early July, total market share for edibles has increased from 11% to 12.3% in the first week of October. Likewise, consumers interested in inhaling cannabis have driven pre-roll market share from 9.3% in July to 10.2% in October.
The second trend we’ve observed is that not all vape manufacturers are created equally. In fact, some brands have even increased their market share within the vapor pen category since the state’s flavored vape ban was introduced in October. These companies aren’t focused on flavored vapes, so the ban has little effect on their inventory. Additionally, tested and legal vape brands who’ve built their reputation on product transparency are able to lean into their reputation for consumer education to whether the storm. Best practices include marketing campaigns that highlight the ingredients and quality of its cartridges. Specifically, providing test results that show their products do not, and never have, contained Vitamin E Acetate oil as a cutting agent.
Waiting for the Smoke to Clear
For the entire cannabis market, the primary lesson is to not merely rely on headlines to stay informed. Yes, the vape crisis has impacted product sales. But any category-wide turmoil has been massively overstated.
Secondly, retailers and manufacturers should tune into the legislative agenda to stay on top of regulatory curveballs. The flavored vape ban in Washington State had an immediate and dramatic impact on category sales. However, well positioned companies with well-managed reputations like Heylo found opportunity to respond effectively and even increase market share. As the U.S. Centers for Disease Control and Prevention (CDC) continues researching the cause of vaping-related illness and its long-term effects, we can expect more findings and regulations concerning materials in the cartridge, temperature and other factors.
Most importantly, the cannabis market has proven its resilience and flexibility in the past. Vape pen declines were quickly replaced by other products – most notably edibles and pre-rolls. That market elasticity bodes well for new product development and line expansions for brands in adjacent categories.
The vape crisis hasn’t stopped consumer interest in the category. If anything, it has expanded it. Consumer-conscious brands and retailers will take note and take advantage of the opportunity at hand. At the end of the day, customers who want to use cannabis will always find a way to engage with the market, but it is up to retailers to provide them with a safe and positive experience.
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
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