Cannabis 2.0, the second phase of legalization, got underway in Canada on Thursday. Notably, the day was also the first anniversary of recreational cannabis legalization in Canada. CNN Business reported that Health Canada started accepting applications from companies that want to produce cannabis-infused derivatives like vapes, edibles, and concentrates. The report added that the companies can’t sell their cannabis-derived products for 60 days after submitting the application form. During this period, Health Canada will conduct the necessary inspections and provide the required approvals.
What to expect from Cannabis 2.0
Brightfield Group, a market research firm that specializes in cannabis, expects Canada’s cannabis sales to reach $3.7 billion next year—a rise of 131.3% from $1.6 billion this year. The research firm expects the derivative products to generate $900 million in sales next year. Amid the background, we’ll discuss Aurora Cannabis’s (ACB) progress in the vapes category.
Concerns about vaping-related deaths
On Thursday, the CDC reported that 33 people have died from vaping-related illnesses as of Tuesday. Meanwhile, 1,479 people are still suffering from vaping-related illnesses. The agency hasn’t identified the exact cause of the illnesses. The CDC warned that people shouldn’t use e-cigarettes that contain THC. Also, people shouldn’t modify or add any ingredients to the products.
Despite the concerns, Aurora Cannabis plans to introduce vape products in December. The company said that it has developed a proprietary extraction process, which retains a high quantity and quality of terpenes. In June, Aurora Cannabis signed a supply agreement with PAX Labs for its PAX Era device. Through the partnership, the company plans to introduce a portfolio of vaping products.
To meet the increased demand with the launch of Cannabis 2.0, Aurora Cannabis has established production hubs in eastern and western Canada. The hubs include the Aurora River, Aurora Vie, and Aurora Sky facilities.
Increased scrutiny will help regulated players
Reports of vaping-related illnesses started in late August. Bloomberg reported that vape pen sales fell significantly in California, Colorado, Nevada, and Washington from late August to mid-September, citing data collected from Headset. However, the declines slowed down from mid-September until the first week in October.
On Thursday, the CDC reported that in most vaping-related cases, the vaping products contained THC or were purchased from illegal sources. In an article published by ABC News on September 19, Dr. Michael Siegel, a professor at Boston University School of Public Health, discussed vaping-related illness. He said, “This outbreak does not appear to be associated with traditional legally-sold e-cigarettes, but with illicit and sometimes counterfeit THC vaping cartridges.”
So, we expect increased scrutiny to educate customers and help weed out illicit manufactures—one of the major concerns for regulated cannabis players. We expect increased scrutiny to drive regulated cannabis companies’ sales in the long run.
Other major cannabis players
Canopy Growth (CGC) (WEED), Aphria (APHA), and Cronos Group (CRON) want to capture market share in the cannabis-infused vapes category.
Canopy Growth has been focusing on developing its own propitiatory devices to set itself apart from the competition. The company plans to introduce 15 vaping SKUs in the Canadian market. For more on the company’s strategies, read Canopy Growth: Getting Ready for Cannabis 2.0.
Aphria expects the vapes and concentrates categories to generate 30% of adult-use cannabis sales by 2021. In June, the company announced that it would provide PAX Labs with cannabis extracts in pods for its Pax Era device and platform. Recently, Aphria reported better-than-expected earnings for the first quarter of fiscal 2020. To learn more, read Aphria Stock Rose after Impressive Q1 Performance.
Last month, Cronos Group signed a contract manufacturing agreement with MediPharm Labs. According to the agreement, MediPharm Labs will provide labeling and packaging services to Cronos Group’s vaping devices.
So far, the cannabis sector has been under pressure this year. Cannabis stocks fell due to vaping-related illnesses, expectations of slower revenue growth in the second half of 2019, and delayed regulatory approvals. The ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) have fallen 19.6% and 23%, respectively. Meanwhile, the S&P 500 Index has increased 19.6%. Individually, Aurora Cannabis, Canopy Growth, Aphria, and Cronos Group have lost 24.6%, 25.4%, 17.8%, and 19.3% of their stock values.
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