Does the FDA’s Juul Ban threaten cannabis stocks?
Any company making vaporizers should now beware that federal regulators are on the prowl. On June 23, the Food and Drug Administration (FDA) ordered Juul Labs, maker of Juul vaporizer systems and a part-owned subsidiary of Altria (MO 0.02%)to immediately stop selling its products in the U.S. Regulators cited gaps and inconsistencies in the company’s safety data to justify the ban, and although it was temporarily suspended following a legal action, the message is clear: Anyone who makes vaping products is on notice.
Given that many cannabis companies offer vapes as part of their lineups, it’s reasonable that investors should be on the lookout for any signs of heightened risks to the industry. But based on the FDA’s rationale for banning Juul, there shouldn’t be too much to worry about — here’s why.
The nicotine crackdown may just be getting started
Two years ago, the FDA banned a few flavored nicotine products and also asked vaporizer manufacturers to apply for the right to continue selling vaporizers by submitting data on their safety for users and their effectiveness for their marketed applications.
One of the criteria used by regulators to decide whether to grant manufacturers approval was whether their vapes would be helpful to people trying to quit smoking cigarettes, which some consider a form of smoking. more harmful nicotine than vaping. Another factor was the products’ appeal and dependence on adolescents, for whom the health consequences of early and lifelong nicotine addiction are particularly severe. And finally, the FDA looked for reliable data on potentially harmful chemicals and other major user safety issues so it could determine whether nicotine vaporizers were indeed a net benefit to public health.
For a nicotine product company like Altria, all of these criteria present a significant hurdle to clear, and its attempts to appease regulators with relevant data appear to have failed, at least for Juul. The FDA found that “some of the company’s study findings raise concerns due to insufficient and conflicting data, particularly regarding genotoxicity and potentially harmful chemicals leaching from e-liquid pods. exclusive to society. The good news is that these objections to nicotine vaping products are highly unlikely to be the basis of a similar campaign targeting cannabis vaporizers.
Cannabis vapes don’t have the same issues
Let’s unpack each of the arguments used by regulators and see how they are irrelevant to the marijuana industry, using the products made by companies like Green Thumb Industries (GTBIF -2.44%) for example. Right off the bat, consider that Green Thumb’s cannabis vape segment accounted for about 25% of its $242.6 million in total Q1 revenue. So even if its vaporizers were completely banned, it wouldn’t have as big of an impact as for a company like Juul.
More importantly, no recreational cannabis product is intended to help people quit smoking nicotine cigarettes. There’s also not a lot of effort to market cannabis vapes as a way to quit smoking marijuana flowers, perhaps because cannabis is generally considered less addictive than tobacco. Therefore, the FDA will not be able to keep marijuana vapes on par with Juul.
Additionally, marijuana vapers are not marketed to children, as recreational cannabis products can only be sold to people over the age of 21 in most states where they are legal, and the industry is generally tightly regulated, with most sales taking place at licensed dispensaries where standards are met. forced. This means there is little impetus for a moral panic that might cause regulators to act.
Finally, there is one issue that cannabis companies need to be prepared for scrutiny, and that is the general safety of vaping products. Any companies that make poorly designed or otherwise dangerous marijuana vape juice cartridges or vaporizers are likely to face a judgment once regulators deal with them, which may not be for some time. . But for investors, this could actually be good news.
A stronger regulatory presence in the cannabis industry would help reassure consumers that, on average, marijuana vapes are safe, which could lead to increased sales. For now, feel free to invest in high-quality cannabis stocks heavily invested in vaporizers. They are not yet threatened by the FDA and could in fact benefit from its long-term action.