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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

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