The unintended consequence in the slow-moving argument around cannabis and CBD legalization is the rise in lung illnesses and deaths among vapers. I have been a supporter of the cannabis and CBD market and many companies within them, but with the rising risks of black-market vaping, the entire sector has become toxic.
The irony is these are the companies doing "wrong." I'm not defending Juul here or even Altria (MO) . A company that makes a Fruity Pebbles-flavored alt-nicotine vape product isn't targeting adults. Let's be honest here.
And, yes, there are personal feelings involved in this topic. While I believe cannabis, hemp, and cannabinoids have a ton of potential positive uses, I'm not a fan of vaping, regulated or not. The taking of anything directly into the lungs that isn't medically prescribed and fully tested scares me.
I understand the upside that smoking/vaping provides in terms of measured delivery and quick uptake/effectiveness, but as alternative delivery methods continue to improve, that gap is closing.
The biggest problem I see is the government. We are not only talking about the government dragging its feet on approval and subsequent regulation but also now financing and taxation.
Cannabis and cannabis-related companies are faced with a high cost of capital to do business. That cost of capital is eventually passed through to the consumer. Additionally, companies pay an enormous amount in taxes. Again, this is passed through to the consumer if the business wants to remain in business.
Unfortunately, some users are looking for the lowest cost, which pushes them to the black market. Some users don't have legal access, which pushes them to the black market.
And the black market sells products with the largest "profit" margins looking to stretch every dollar because of the heightened risk, which pushes some sellers to the use of untested and potentially dangerous substances.
We are not seeing deaths from regulated products in regulated markets. We are seeing deaths, in my view, as a result government entities afraid to act for fear of seeing deaths or epidemic usage growing out of control. The irony is by not acting because of their fears, their fears are coming to fruition.
From the rubble will rise some fantastic opportunities in quality names, but the cannabis sector drubbing right now is reminiscent of the dot-com blowup. With depressed stock prices and valuations falling in the private market, we are going to see some names vanish or bought at a cheap price for fear they won't get through this vaping disaster.
More government is seldom the answer, but no government or one turning a blind eye can be even worse.
I know a few subs have asked me about specific names and their poor performance as of late, but what we are seeing now is not company-specific weakness. This action is what we call "throwing out the baby with the bathwater." Everything is being sold whether the underlying company performance is strong or weak.
If you don't have patience or you've been buying every name because cannabis 2.0 will reignite the sector this month, then the road may be rough until the black-market vaping issue is directly addressed.