Vaping has been making news for all the wrong reasons lately. It has made more than 800 people sick, and 16 have died from related illnesses, according to the latest numbers from the New York Times.  While there's speculation that the real culprit is a result of vitamin E and that the problem is originating from the black market, until regulators know for sure, people are going to be second-guessing vaping products. And that could be a big problem for Canadian cannabis companies looking forward to the launch of cannabis-derivative products, which will be legal later this month and available for sale in December.

Vape sales have been struggling in many markets

Recent data from New Frontier Data shows that vape sales in the U.S. were falling significantly in September. Vape sales have been accounting for less market share, with Oregon seeing them account for 62% less in September than they averaged over the previous three months. In New Mexico, their share of the market fell by 65%. Other states saw declines of more than 20%, and only Colorado and Florida were up, at 5% and 11% respectively. 

It's a clear sign that consumers are starting to move away from vapes amid ongoing health concerns. The problem for the industry is that vaping has been a big part of its success, and that could be a big concern if it continues, especially in Canada.

vape pen

IMAGE SOURCE: GETTY IMAGES.

Canadian companies were expecting big things from vaping

According to data from the BCMI Cannabis Report, it was estimated that vaping pens would make up half of the market share of the new cannabis 2.0 products when they were to become available.

Now, with the uncertainty around vaping products, there's a big question mark around all that potential growth. Earlier this year, four cannabis companies, including Aurora Cannabis (NYSE:ACB), secured deals with vaping company Pax Labs to supply cannabis extracts that would be used in Pax's popular vaping system.

One company that wasn't involved in that deal, Cronos Group (NASDAQ:CRON), has been looking into to make its own "next-gen" products at a facility in Israel. With Cronos having tobacco giant Altria Group (NYSE:MO) as a key investor, the cannabis company has a lot more resources at its disposal. The products could be key to lifting the company's sales, which were just 10 million Canadian dollars last quarter. With the stock at a market cap of nearly $3 billion, investors have been paying a big premium for a stock that has lagged behind rival cannabis companies.

Cronos has lost more than half of its value in just the past six months.

What does this mean for investors?

Investors need to be extra careful when looking at cannabis companies in Canada. Until there's at least some conclusion concerning whether vaping is harmful or not, or if certain components of it are, it's going to weigh on the minds of consumers and health officials alike. And with an election in Canada coming up later this month, a more conservative government could take a tougher stance on vaping products.

For now, there's a lot of uncertainty surrounding Cronos and other Canadian-based pot stocks, because if cannabis 2.0 products don't take off, it could lead to underwhelming sales numbers. That makes it all the safer for investors to stay away from Canadian cannabis companies, especially as their share prices continue to fall.