The marijuana industry is evolving before our eyes. What had once been a taboo industry that was dominated by the black market and dried cannabis flower will soon be no more.

Following the recreational legalization of cannabis in Canada last October, and the ongoing push to give the green light to medical and recreational weed at the state level, acceptance of marijuana into legal channels is growing.

More importantly, at least from an investment perspective, we're also seeing consumer buying habits shift. Dried flower is now viewed as yesteryears' preferred consumption source. A younger generation of pot users prefers derivative options, such as oils, edibles, infused beverages, topicals, vapes, concentrates, and much more. These alternative consumption options usually have a much higher price point than dried flower, and they generate considerably juicier margins.

A young man with a beard blowing vape smoke as he stands next to a building

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Four "smoking"-hot marijuana vape stocks you'll want to know

According to investment firm GMP Securities, extracts stand to make up at least half of the Canadian market over time. Roughly 10% of this market could be in the form of nonalcoholic cannabis-infused beverages, with another 15% derived from edibles.

But the creme-de-la-creme of derivative products is expected to be vape pens, with 20% of the total market. If Arcview and BDS Analytics are correct with their estimate of close to $5 billion in total Canadian pot sales by 2024, and GMP is right about vapes being the dominant derivative, we're talking about at least a $1 billion vape market in Canada, and presumably a multibillion-dollar vape market in the United States. 

The good thing for investors is that there are two primary ways to play the cannabis vape market. They can either choose to buy the vaporizer manufacturers and suppliers, or go after the recurring revenue provided by the extract suppliers. No matter investors' preference, there are a handful of must-know cannabis vape stocks.

A vape pen next to a vial of extract liquid and neatly arranged dried flower

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Cannabis extract suppliers

Potentially the most high-profile of all the vape extract companies will be Cronos Group (NASDAQ:CRON), which closed a major equity investment from tobacco giant Altria (NYSE:MO) in mid-March. Cronos Group plans to focus most of its production on derivative products, and it would only be logical if Altria, the company that sunk $1.8 billion into Cronos for a 45% stake, aided with that development process.

As a reminder, Altria made a substantial $12.8 billion investment in vaping device maker Juul in December, which is good enough for a 35% stake. This investment came just weeks after announcing its stake in Cronos Group. With access to the most popular vaping device (at least in the U.S.) through its equity partner, Cronos Group may have an outlet for success in Canada, as well as in the United States, if the federal government ever changes its tune on marijuana.

The other must-know extract provider in the vape space is The Supreme Cannabis Company (OTC:SPRWF). That's right, not Aurora Cannabis or some other much larger producer, but modestly sized Supreme Cannabis Company.

With perhaps 50,000 kilos of production a year from its flagship 7Acres campus, this is an easy company to overlook. However, the company's cannabis quality cannot be underestimated. There are only a small percentage of growers focused on the ultra-premium and premium-quality dried cannabis and extract market, and Supreme Cannabis is one of those companies. Having recently partnered with PAX Labs to supply extracts for the PAX Era pen-and-pod vape system, Supreme is in the perfect position to reach a more affluent vaping clientele.

A person blowing out vape smoke while holding a vape pen a few inches from his mouth

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Marijuana vaporizer manufacturers

In terms of vaping device manufacturers and parts providers, one of the more intriguing names to monitor is KushCo Holdings (OTC:KSHB). KushCo makes a living in multiple areas of the ancillary market, including providing compliant packaging and branding solutions to over 5,000 growers worldwide. But the majority of its business has been derived from vaporizers, which is a business segment that should see tremendous growth to the north once Health Canada legalizes new derivative products (including vapes) later this year.

KushCo's prized vaporizer segment has been a bit of a sour note in recent quarters due to the U.S.-China trade war. Tariffs on imported vape components have been eaten by KushCo, rather than passed along to consumers, thereby hurting margins. But the company recently made the decision to pass along any higher import expenses to consumers, which really shouldn't be a problem given the tremendous demand for vaping devices in the U.S., and soon Canada.

Then there's Greenlane Holdings (NASDAQ:GNLN), which is only one of the largest providers of vaporization products in North America. Greenlane provides an assortment of product categories to more than 11,000 retail outlets throughout North America, including customized packaging, papers and wraps, and even hemp cannabidiol products. But the company's vaporizer products are likely to be the driving force behind Greenlane's growth for the foreseeable future.

What may set Greenlane apart from its peers, and why it's a must-know cannabis vape stock, is the company's efforts to internally develop and acquire well-known vaporization brands, and then use those brands to build distribution networks. It's been successful with this model in the early stages throughout the U.S., and it will look to build on its 103% net revenue growth in 2018 (for all products, not just vapes) when Canada launches new derivative options in the months that lie ahead.