Over the past five-plus decades, we've seen a pretty dramatic shift in how Americans view, and use, tobacco products. In the mid-1960s, roughly 42% of American adults were cigarette smokers. But as of 2017, the Centers for Disease Control and Prevention (CDC) reports that cigarette smoking rates have declined to a record low of 14% among adults (about 34 million U.S. adults). 

There are a number of factors that have played into this decline, including improved health awareness surrounding the long-term dangers of smoking tobacco, improved access to preventative and medical care, as well as growing access to smoking-cessation tools.

But as traditional cigarette sales volumes have floundered, Big Tobacco has looked to pick up the slack with alternative products. Perhaps none is more popular than vaping.

A young man with a beard and sunglasses exhaling vape smoke while outside.

Image source: Getty Images.

Big Tobacco flocks to alternative nicotine consumption options

With vaping, the consumer utilizes a battery-powered device that heats a cartridge containing a liquid, turning that liquid into a vapor that the user then inhales. It's very similar to smoking, but has been touted as a potentially safer alternative given the lack of perceived chemical compounds in the liquid used in vaping relative to a tobacco cigarette. The liquid contains nicotine, thereby giving the consumer the same buzz that they would receive by smoking a traditional tobacco cigarette.

To say that vaping is expected to grow into a gigantic market would be an understatement. According to Grand View Research, the electronic cigarette and vape market is expected to grow at a compound annual rate of 24.9% over the next six years, ultimately hitting $47.1 billion in worldwide sales in 2025. This massive growth opportunity is what's enticed tobacco companies to consider alternatives to traditional products. 

For example, Altria (MO -0.12%), the company behind the well-known Marlboro premium brand, took a 35% stake in vaping device company Juul last December for $12.8 billion. This $12.8 billion bet is a monstrous hedge against the persistent drop in tobacco use. 

Furthermore, Altria also invested $1.8 billion into cannabis stock Cronos Group (CRON -2.88%) in March for a 45% nondiluted stake in the company. With Canada having legalized recreational marijuana last year, and the country about to green-light derivative products, including vapes, the thinking is that Cronos and Juul could make for a dynamic duo in high-margin marijuana derivative products throughout Canada, and potentially North America.

And Altria certainly isn't alone. Imperial Brands (IMBB.Y 0.05%), the tobacco company behind the Kool and Winston premium cigarette brands, recently closed a deal for 123 million Canadian dollars with Auxly Cannabis Group (CBWTF 0.81%) via a convertible debenture. This deal will allow Auxly and Imperial Brands to work hand-in-hand in creating cannabis-focused vape products for the Canadian market.

Two surgeons examining a chest X-ray.

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The vaping investment thesis begins to go up in smoke

However, to utter the most overused cliché among tobacco and cannabis stocks, everything looks to be "going up in smoke" for the vape industry of late.

For the past couple of months, all eyes have been on a number of mysterious lung illnesses that have cropped up in the U.S. and have been linked to people who vape. According to an Oct. 1 update from the CDC, there have been 1,080 confirmed or probable cases of vape-related lung illnesses in 48 states, including 18 deaths in 15 states. The data also shows that approximately 80% of the patients are under the age of 35. 

The big concern with these lung illness statistics, which increase every week, is that researchers have no concrete idea what's specifically to blame for these health issues. Some small patient subsets in select states have shown that a majority of users to have developed serious lung illnesses requiring hospitalization used a tetrahydrocannabinol (THC)-containing liquid in an electronic cigarette device -- THC being the cannabinoid that gets users high. This has led to the loose interpretation that THC in vaping devices may be cause for concern, at least from a health perspective.

This health scare has led to a definitive slowdown in what had been an unstoppable market. According to Nielsen data, per CNBC, e-cigarette sales volume growth over the four-week period ending Sept. 21, was a full 10 percentage points lower than the growth experienced over the 12-week period leading up to the same end date. An even starker growth decline was witnessed with Juul, which saw its U.S. market share decline to 66.7%. 

Additionally, we've seen Massachusetts enact a four-month ban on vaping products, with Oregon and Washington also instituting temporary bans on flavored vaping products. 

And things may get even worse.

A lab researcher using a dropper to put liquid into a test tube.

Image source: Getty Images.

A new study provides the first-ever link between vaping and cancer

This past Monday, New York University published a study in the Proceedings of the National Academy of Sciences showing the first scientific connection between vaping and cancer in mice.

The study examined 40 mice that were exposed to e-cigarette vapor containing nicotine over a 54-week period. In total, 22.5% (9) of the mice developed lung cancer, and 57.5% (23) had precancerous lesions on their bladder. Comparatively, 20 mice were exposed to e-cigarette smoke without nicotine, and over the four years of studying this subset of mice, researchers note that not one developed cancer. This is a very small subset of mice, but it's nonetheless a very statistically significant finding that led researchers to suggest that more research must be done. 

Unfortunately, researching the long-term impact of vaping on humans isn't a cut-and-dried project that can be completed in weeks or months. It could be years, or a decade, before an accurate safety profile emerges on vaping products and their impact on humans -- and that's a timeline the U.S. Food and Drug Administration (FDA) may not tolerate. The FDA is already working on regulations that would remove nontobacco flavors of vape liquids from the marketplace to prevent underage use, but may consider putting its foot down even more if this vape-related health scare continues to worsen.

This is bad news for both the traditional tobacco industry and budding cannabis industry. The more this vaping health scare builds, the weaker Juul could become. Juul is the linchpin of long-term growth for Altria and likely Cronos Group. It also places the partnership between Imperial Brands and Auxly Cannabis in jeopardy, as well as lowers the growth outlooks for pretty much all global tobacco companies.

Suffice it to say that vape-related health concerns aren't going away anytime soon.