Any company making vaporizers must now beware that federal regulators are on the prowl. On June 23, the Food and Drug Administration (FDA) ordered Juul Labs, maker of the Juul vaporizer systems and a partially owned subsidiary of Altria (MO 1.33%), to immediately cease selling its products in the U.S. Regulators cited gaps and inconsistencies in the company's safety data to justify the ban, and while it's been temporarily suspended as a result of legal action, the message is clear: Anyone who manufactures vaporizer products is on notice.
Given that many cannabis companies offer vapes as part of their lineups, it's reasonable for investors to be on the lookout for any signs of heightened risks to the industry. But based on the FDA's rationale for the Juul ban, there shouldn't be too much to worry about -- here's why.
The nicotine clampdown could just be getting started
Two years ago, the FDA banned a couple of flavored nicotine products and it also requested that vaporizer manufacturers apply for the right to continue selling vaporizers by submitting data about their safety for users and their efficacy for their marketed applications.
One of the criteria that regulators used when considering whether to grant approval to manufacturers was whether their vapes would be useful for people who were trying to quit smoking cigarettes, which is thought by some to be a more harmful form of nicotine consumption than vaping. Another factor was how appealing and how addictive the products might be to teenagers, for whom the health consequences of an early-established and lifelong nicotine addiction are especially burdensome. And finally, the FDA sought hard data on potentially harmful chemicals and other major safety concerns for users so that it could determine whether nicotine vaporizers were indeed a net benefit to public health.
For a nicotine products company like Altria, all of these criteria pose a high hurdle to clear, and its attempts to placate regulators with the relevant data appear to have failed, at least for Juul. The FDA found that "some of the company's study findings raised concerns due to insufficient and conflicting data -- including regarding genotoxicity and potentially harmful chemicals leaching from the company's proprietary e-liquid pods." The good news is that these objections to nicotine vape products are very unlikely to be the basis for any similar campaign targeting cannabis vaporizers.
Cannabis vapes don't have the same issues
Let's unpack each of the arguments that regulators used and see how they aren't relevant to the marijuana industry, using the products made by companies like Green Thumb Industries (GTBIF 0.52%) as an example. Right off the bat, consider that Green Thumb's cannabis vape segment accounted for around 25% of its $242.6 million in total revenue in Q1. So even if its vaporizers were banned completely, it wouldn't have as large of an impact as it would for a company like Juul.
More importantly, no recreational cannabis products are intended to help people stop smoking nicotine cigarettes. Nor is there much of any effort to market cannabis vapes as a way to quit smoking marijuana flowers, perhaps because cannabis is generally considered to be less addictive than tobacco. Therefore, the FDA won't be able to hold marijuana vapes to the same standard as it did with Juul.
Furthermore, marijuana vapes aren't marketed to children, as recreational cannabis products are only saleable to people over the age of 21 in most states where it's legalized, and the industry is generally tightly regulated, with most sales occurring at licensed dispensaries where standards are enforced. That means there's little impetus for a moral panic that might drive regulators to act.
Finally, there is one issue where cannabis companies need to be prepared for scrutiny, and it's the general safety of vape products. Any businesses that are making poorly designed or otherwise unsafe marijuana vape juice cartridges or vaporizers are likely to face a reckoning once regulators get around to it, which may not be for a while. But for investors, that could actually be good news.
A stronger regulatory presence in the cannabis industry would help to give consumers confidence that on average, marijuana vapes are safe, which could lead to higher sales. For now, don't shy away from investing in high-quality cannabis stocks that are heavily invested in vaporizers. They aren't facing a threat from the FDA as of yet, and they might actually benefit from its action in the long run.