One of the biggest trends to come out of the legalization of marijuana for adult use has been the explosive growth of vape pens. Most people, when they visualize smoking marijuana, they get an image of someone smoking a joint or pipe. This is the traditional method of consuming marijuana -- and so far marijuana flower continues to be the number one seller and joints are now called pre-rolls.
However, that number one position is losing strength as cannabis consumers are making the switch to vape pens. Mature markets like Colorado and Washington have seen the market share grow to 13%-15% today. The fairly new market of Nevada has experienced vape growth from a robust start of 15.7% market share in July of 2017 to 18.7% in May of 2018, according to BDS Analytics. This is the share of the entire market including flower, edibles and other forms or consumption.
When the sales figures just look at the extraction or concentrate products, vape commands as much as 86% of the market in Colorado, Washington and Oregon. In California, it is 71% of all concentrate sales.
In order to get the cannabis oil for the vape pens, the cannabis plant is fed into an extraction machine, and after a multi-step process, a thick brown substance is produced which is called cannabis oil. This product can also be turned into concentrates like shatter, wax and crumble. This is a very pure form of THC that requires a special pipe to smoke and is very potent.
Standard cannabis oil is what is used for vape pens -- and the potency can vary widely from a very light form of THC to heavy. Some vape pens are only made for CBD, which has no psychotropic effect and is only used for wellness products. So not all vape pens are the same.
Consumers are drawn to the vape pens because they look very much like an e-cigarette and an observer would have no idea it's a cannabis vape pen, unless they recognized that the smoke smells just a little differently. A vape pen is convenient and easy to pop in a pocket or handbag. It isn't as delicate as a pre-roll and can be carried just about anywhere. A consumer can smoke on the vape pen discreetly, whereas a consumer can't light up a joint without the smoke and smell signaling to everyone what is happening.
The vape pens are more expensive than the traditional flower buds, but consumers like the consistency of the product. Many vape pens will display an estimated number of uses, which consumers like versus the unknown usage of a pre-roll.
So, with the market data supporting the case for vaping, investors would be wise to focus on companies that can deliver this all-important product. Investors should also know that the Canadian market won't allow vaping products at the onset of legal adult-use cannabis sales. Those products will be allowed later.
How to Invest
Organa Brands is a private company, but it is the leader of vape product sales in Colorado. Its O.penVape products are always at the top of the list for product sales. While investors can't jump into this company now, it's worth remembering if the company ever plans to go public. Another way investors can get involved with O.penVape is through Canopy Growth (CGC) . Canopy recently announced a joint venture with Organa Brands to help create vape products for Canopy for the Canadian market.
"We are incredibly excited about this new partnership -- since the inception of Organa Brands, one of the key tenets of our business has been forming smart partnerships with mutually beneficial results. Working with Canopy and Green House has been a surreal moment as we continue to fully recognize the impact of what this deal means for the industry as a whole," said Organa Brands Co-Founder, Jeremy Heidl.
Canopy also acquired Hiku Brands, which signed a deal earlier this year with popular California vape pen company Dosist. Clearly, Canopy saw the writing on the wall.
Aphria (APHQF) is another great way to access the vape market. This company makes both THC and CBD vape products. While it is headquartered in Canada, the company is also making a big play for the Florida market. Aphria is behind the Liberty Health Sciences Cannabis Education Centers opening up within the state of Florida. These centers provide Aphria products along with home delivery and products can be bought by FL medcard holders.
Evolabs is the second-biggest producer in Colorado, according to BDS Analytics. This company is joining forces with The Green Organic Dutchman (TGODF) for the Canadian market. The combination of certified organic cannabis and a top vape pen sounds like a marriage made in dispensary heaven.
Of course, many "brands" have a vape version in the portfolio. For example, Tilray (TLRY) has access to the vape market through products in its brands Marley Natural, Dutchy and Grail.
This is the key item that investors need to look for when analyzing a cannabis brand company. Does it have a vape product and is the vape product a leader in sales?