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Going Big on Vaping Is a Serious Headwind for Cronos Stock

As could have been expected, the cannabis industry’s key opinion leaders moved quickly to get out in front of what can only be described as a crisis for the vaping industry. Cronos Group (NASDAQ:CRON) CEO Michael Gorenstein was no exception to that groupwide response, publicly making his case in an interview with CNBC’s Jim Cramer in an effort to prevent Cronos stock from losing even more ground.

Going Big on Vaping Is a Serious Headwind for Cronos Stock
Source: Shutterstock

It’s difficult to say the company isn’t going to be affected vaping’s new woes though, despite the damage-control effort. It was intended to be one of Cronos’ big growth engines now that we’re nearing the one-year anniversary of Canada’s nationwide legalization of recreational marijuana.

The Vape Crisis and Cronos Stock

Pot is legal in Canada and quasi-legal in several U.S. states. Tobacco companies have cultivated what was supposed to be a safer alternative to smoking, called vaping. Rather than burning cancer-causing tobacco, electronic cigarettes can (literally) vaporize a variety of nicotine-laced substances for the purpose of inhaling.

Vaporizers have introduced problems of their own. To date, more than 500 people who regularly ‘vape’ have developed lung-health problems, and six people have died. The culprit appears to specifically be the flavored vapes, given the recently-imposed nationwide ban of them.

It’s part of an apparent nuance Gorenstein and his fellow cannabis company executives have sought to exploit. Aurora Cannabis (NYSE:ACB) Executive Chairman Michael Singer, for instance, is “very worried about what I’m reading in the U.S.,” but was quick to explain, “In Canada, it’s very different, and we’re heavily regulated by Health Canada, which is a good thing.”

For good measure, Singer added, “When it comes to vaping or vaping products that we’re going to be launching, we’re going to be testing every one of our products to a rigorous standard to ensure the products we offer to consumers are safe and we feel comfortable that we are not in any way putting at risk our customers or our patients with regards to our derivative products.”

The abatement effort, however, may simply not be enough, and Cronos stock could pay a dear price.

Cronos Stock and the Future of Vaping

Cronos Group has largely sought to shift the discussion toward one that downplays the importance of vaping to the company’s future.

That doesn’t jibe with what Gorenstein has said in the not-so-distant past though. In a March interview with MarketWatch, the CEO plainly said that of opportunities ahead, “After nonflower categories, vaporizer is clearly the biggest. And then edibles is next, then topicals, and then you start getting into how you classify pharmaceutical formats. Then you get into beverages.”

Perhaps worse, just last week in the midst of vaping hysteria, Medipharm Labs (OTCMKTS:MEDIF) and Cronos collectively announced the two organizations had expanded a relationship that now calls for “MediPharm to produce high-quality cannabis concentrate filled vapes for Cronos Group.”

The timing of the news release couldn’t have been worse, reminding investors that Cronos is plowing ahead into murky waters.

The proverbial 800 pound gorilla in the room, however, is Cronos’ relationship with tobacco giant Altria Group (NYSE:MO). Altria, the maker of Marlboro cigarettes, took on a 45% stake in Cronos earlier this year, then just two weeks later acquired a 35% stake in e-cigarette maker Juul.

While Altria’s CEO Howard A. Willard has never outright said those investments were ultimately meant to be a means of melding vaping and cannabis, the timing of all the dealmaking makes it difficult to believe such an idea wasn’t on his mind.

If vaping is perceived as a health worry, Altria’s interest in keeping Cronos moving forward is called into question.

Bottom Line for Cronos Stock

Vaping hasn’t been outright banned in the United States, to be clear, or in Canada. The federal ban only applies to flavored vapes, and will only remain in place until the FDA has a chance to figure out if these devices need to be better regulated.

It would be naive to believe vaporizers haven’t been deemed guilty by association in the court of public opinion though, here and north of the United States’ northern border. And, it may well be officially determined that any vaping of any kind is a serious health threat.

Point being, Cronos Group was undoubtedly depending on vaporizers as a key growth driver of future revenue. Gorenstein literally said it, while Altria’s Willard acted in a way to suggest it. Now that opportunity has been severely threatened, even if stricter regulations or an outright ban aren’t inevitable.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2019/09/going-big-vaping-headwind-cronos-stock/.

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