According to USA Today, the Juul Labs and its brother Pax Labs are facing the same fate amid the mounting scrutiny for THC Vape products.
When Juul Labs and Pax Labs were split into two from one company in 2017, they seemed destined to reach new heights – Juul will conquer the nicotine e-cigarette industry, while Pax will dominate the cannabis e-cigarette business.
However, their fate is rapidly diverging. After Juul billed itself on as a safe alternative to cigarettes, Juul was accused of ensnaring kids to nicotine addiction. But for Pax, which has largely avoided the mounting scrutiny, because of the high technical and capital barriers in the cannabis market that make it difficult for the company to attract investors.
But for Pax, it seems the honeymoon is going to an end
Federal authorities are tracking out the outbreak of lung disease associated with e-cigarettes, about 75% of which are associated with products containing THC, the main psychoactive ingredient in cannabis. Authorities say that so far, half of the tested THC products also contain vitamin E acetate.
The company said in a statement on September 11 that none of these cases involved PAX products. “Although the reasons have yet to be determined, none of the brand partners who fill and distribute our pods use vitamin E acetate in PAX formulations, and all cartridges are subject to rigorous state regulatory compliance, and we choose our partners with careful diligence.”
But on October 4th, the FDA warned to stop using any kind of THC products immediately, including those from seemingly reliable companies. The agency also advises people not to modify or add any substances, such as THC or other oils, to products purchased in stores.
Not only that, on the evening of October 15, the former FDA Commissioner Scott Gottlieb also called for the ban on e-cigarettes containing THC, because the vape-related lung illnesses have sickened more than 1,000 people in America.
Gottlieb said on Twitter that the hardware sold for THC vape oil would lead to catastrophic consequences and should be banned.
The CDC said that as of October 11, nearly 1,300 people had been diagnosed with lung disease and at least 26 people died. Public health officials say most of these people report using THC vape products. Especially those that are purchased from the street or other informal sources.
At present, CDC and FDA warnings have caused the CBD market to suffer tremendous losses due to THC involved.
Marianne Udow-Phillips, executive director of the University of Michigan’s Center for Healthcare Research and Transformation, said the aforementioned recommendations put the company’s business model into a crisis model.
She said that CBD and THC e-cigarettes are now at great risk. “The problem is that we really don’t know, and science doesn’t know the cause of all these diseases.”
Pax has a lot of risks
According to data from Standard & Poor’s global market intelligence firm S&P Global Market Intelligence, the private company’s annual revenue is about $262 million. Pax said last month that it has sold more than 500,000 devices for oil concentrates, including products containing THC.
According to data from the investment tracking firm Crunchbase, the company was valued at $1.7 billion in April. Faced with questions about the exact nature of the disease, Pax announced the establishment of a health advisory committee in late September.
Lisa Sergi, the company’s newly appointed CEO, said in a statement on 25 Sep, that the priority of PAX is consumer safety, as people are increasingly concerned about the risks and prevalence of illegal cannabis.
She said that only pre-approved brand partners can provide vape oil for their devices. But social media reports and videos revealed by USA Today show that some users are modifying Pax devices to use their own homemade THC oil.
In a YouTube video called “Vape HowTos” with more than 56,000 views, the user demonstrated skill on how to fill none Pax oil to Pax devices. “You can save money by refilling the Pax Era Pod without buying a new Pod.”
Robert Jackler is an e-cigarette enthusiast and a professor at Stanford University, an otologist and neurologist specializing in complex ear diseases. He believes that Pax’s products have nothing to do with recent lung disease is questionable.
He said that we don’t know if Pax is injuring people.
On the other hand, on October 16, Colorado’s cannabis regulators are finalizing a ban on the use of three additives in cannabis vape products due to the amounting concern about vape-related illnesses. Although it is not clear what caused it, at least 9 cases were reported in Colorado.
On Tuesday, Colorado’s cannabis law enforcement department held a public hearing to discuss the proposed final rule on the ban on certain additives. They have been studying and discussing this issue for several months.
Shannon Gray of the Cannabis Law Enforcement explained: “We have had over a dozen stakeholder workgroups this summer with a very robust conversation.”
Experts say that the natural form of THC oil is too thick to evaporate, so additives are often used to dilute the THC oil. Some of these additives have been identified as potential risks by the CDC.
Gray explained: “We are explicitly banning the use of three different ingredients.” These additives are polyethylene glycol (PEG), vitamin E acetate and medium-chain triglycerides (MCT oil). “We want our health partners to use their scientific expertise to advise on any ingredient that may have problems and affect consumer safety.”
The meeting was open for public comment. Although some people in the cannabis industry agree to stricter regulations, others still have questions. A man asked the panel: “ I would like to ask how this will be implemented, will it be tested to verify these ingredients?
According to MED, additives will be listed on the product label.
The proposed rules will now be sent to the National Licensing Authority for approval and signature. If passed, the rule will take effect on January 1, 2020.
It can be seen that the fallout of lung disease is gradually eroding the cannabis vape market, and PAX is only a typical case. Other companies selling THC products and others committed to developing CBD vape oil are also expected to be affected.
This does not mean that PAX will face a market crash
On October 17, Canada will officially launch a new round of legalization. In addition to the dried cannabis flowers, extract oils and sublingual sprays that were allowed to be sold a year ago, other popular cannabis derivatives such as edible cannabis, beverages, spices, concentrates, and e-cigarettes will be Legalised.
The law governing related products will take effect on the first anniversary of legalization (October 17, 2019). The era that allowed these consumer products to be launched was called “legalization 2.0.” According to current regulations, the relevant manufacturer must notify the Health Canada of Canada 60 days before the planned sale of new products. The department will accept new product applications from October 17 this year.
Related companies will benefit from this. There are two reasons: First, it provides a way to reach a wider range of consumers. Taking cannabinol (CBD) as an example, a non-psychoactive extract is currently known for its recognized medical benefits and has high popularity in the derivative range. Secondly, the profit margin of related derivatives is significantly higher than that of dried products such as dried flowers. It is expected that after the start of Legalization 2.0, a large number of derivatives will begin to enter licensed stores, and sales and profit margins are expected to rise.
Related companies will benefit from this. There are two reasons: First, it provides a way to reach a wider range of consumers. Taking CBD products as an example, a non-psychoactive extract is currently known for its recognized medical benefits and has high popularity in the cannabis derivatives products. Secondly, the profit margin of related derivatives is significantly higher than that of dried products such as dried flowers. It is expected that after the start of Legalization 2.0, a large number of derivatives will begin to enter licensed stores, and sales and profit margins are expected to rise.
Legalization 2.0 will become a growth catalyst for the entire industry. Legalization 2.0 is expected to make Canada’s related product inventory experience short-term, medium-term and long-term growth. Take the three leading cannabis companies in the Canadian market as an example:
- Cronos Group. The company’s goal is to become a major CBD producer and competitor in the electronic hookah market. The company will acquire access to its microbial development platform from Ginkgo Bioworks (Boston Biotech Startup) to produce yeast strains capable of producing CBD on a large scale. Ginkgo Bioworks is also working with Altria, which owns 45% of the company, to develop products for the electronic hookah market;
- OrganiGram Holdings. The company is currently renovating the Moncton plant in New Brunswick to increase the productivity of CBD extraction, while also developing a nanoemulsion technology that can further increase the speed of CBD extraction. The company will first demonstrate its proprietary nanoemulsion technology in the form of dry powder, but they are still actively looking for partners with this technology;
- Supreme Cannabis. The company announced the acquisition of Truverra and Blissco. Truverra will produce derivatives for Supreme and serve the company’s international medical needs. Blissco offers health products and video ads based on CBD and THC. The company also supplies cannabis extracts, resins, and distillates to the famous manufacturer PAX Labs for use in the electronic hookah PAX Era. According to Deloitte data, the benefit from legalization 2.0, the market size of related products in Canada is expected to reach 2.7 billion US dollars, the global market size is expected to reach 100 billion US dollars, and will double to 194 billion US dollars in 5 years.
Therefore, in conclusion, amid the troubled times, although the US market has suffered a lot, there are still hopeful market spaces in neighboring Canada and the legal areas of industrial cannabis that have not been affected.
The only question now is whether lung disease will lead to regulatory reforms in the cannabis market. If the United States significantly adjusts the cannabis policy in the near future, companies like PAX can only develop emerging markets, or follow revised policies and adjust the company strategy accordingly.