A U.S. recommendation that consumers avoid vaping products containing the active ingredient in marijuana ahead of their legalization in Canada next month could be a blow to Canadian cannabis companies’ hopes that the higher-margin products will help propel them to profitability.
The U.S. Centres for Disease Control and Prevention (CDC) said Friday that an investigation into 805 confirmed or probable cases of vaping-related respiratory illnesses suggested that products containing THC, the psychoactive element in cannabis, likely played a role.
The heightened health concerns come at a time when Canadian cannabis companies, whose share prices have tumbled over disappointing sales and supply and quality hiccups, are investing millions of dollars into marijuana derivatives, including vape products.
Vapes are among a series of new products — including edibles, beverages and extracts — that will be for sale legally in Canada in mid-December.
While keeping a wary eye on U.S. developments, cannabis companies are betting that already-strict Canadian regulations will ensure the safety of their products.
The Horizons Marijuana Life Sciences Index ETF has dropped 54 per cent since its peak last year on Oct. 16, the day before adult recreational use of cannabis flower and THC and CBD oils were legalized. CBD does not contain the compound that gets people high.
The vaping concerns have contributed to recent declines and will continue to hurt shares, said Bruce Campbell, portfolio manager at Stonecastle Investment Management, which invests in cannabis stocks.
“It’s a case of ‘shoot first, ask questions later,'” he said. “[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 much as 30 per cent, with many marijuana consumers reverting to use of less profitable flower and oil products.