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Legal cannabis is a big-money business that could be worth as much as $200 billion in a decade's time, according to projections offered by investment bank Stifel. For context, global sales totaled "only" $10.9 billion in 2018, which demonstrates just how robust growth could be over the years to come.

But as is often the case with next-big-thing investments, they're not without their growing pains. For the legal weed industry, that time is now.

Supply shortages and high tax rates have hurt the North American legal pot industry

Since day one of legalization on Oct. 17, 2018, Canada has been dealing with a shortage of cannabis. Part of this blame can be placed on the growers themselves, mainly because they waited until the passage of the Cannabis Act was a certainty before spending big bucks on capacity expansion projects. As a result, some very large-scale greenhouses are still under construction a year after the green flag waved on adult-use weed in Canada.

However, the bulk of the supply issues in our neighbor to the north have to do with the expediency of approving licenses. Regulatory agency Health Canada entered the year with a monstrous backlog of more than 800 cultivation, processing, and sales license applications that were awaiting review or approval. The agency has implemented stricter guidelines for the cultivation license application process in hopes that it'll reduce its backlog, but this is no quick fix.

Meanwhile, certain provinces have been slow to green-light the opening of retail dispensaries. Without physical dispensaries for consumers to buy from, they're left to either buy online and wait for delivery or purchase from a black market producer. This is a big reason why the black market has been so resilient in Canada, even with a relatively low excise tax rate on legal products.

Comparatively, the U.S. marijuana market has largely disappointed because of high tax rates on legal weed. In California, the state expected to lead all others in annual cannabis sales, the combination of state, local, excise, and wholesale taxes could hit up to 45% in select cities. Plus, with municipalities free to choose whether pot stores can open in their jurisdiction, access to marijuana in recreationally legal states has been spotty.

But there's another danger that's been rearing its head of late: vape-related health concerns.

The vape-related health scare isn't going away

According to a press release from the Centers for Disease Control and Prevention (CDC) in the United States, 1,299 people have confirmed or probable lung illnesses associated with the use of vaping products in 49 states. In total, as of Oct. 8, 26 people have died as a result of these mysterious lung illnesses. 

There are two factors that make this scare particularly worrisome.

First, from a health perspective, the CDC is unsure of exactly what's causing these mystery lung illnesses in vape users. What has been noted is that most of the patients who have been diagnosed with these lung illnesses have used a vaporizer to consume tetrahydrocannabinol (THC)-containing liquids. THC is the psychoactive cannabinoid responsible for getting users high. Although the CDC does note that certain individuals with these lung illnesses have used only nicotine-containing cartridges, which doesn't exclude the possibility that this is a nicotine-based issue, the CDC recommends, for the time being, consumers not vape products containing THC.

As a side note, this CDC data and recommendation comes shortly after a New York University study linked vaping to cancer in mice. Understandably, there was nothing concrete about the small sample size of the findings. However, there was a statistically significant difference noted between mice exposed to nicotine-containing vape smoke and vape smoke with no nicotine. In the latter group, none of the 20 mice exposed to non-nicotine vape smoke developed cancer over a four-year period. Comparatively, 22.5% of the 40-mouse subset exposed to nicotine-containing vape smoke developed lung cancer, and 57.5% had precancerous lesions of their bladder, after just 54 weeks.

The second concern is purely financial. As the number of instances of vape-related lung illnesses and deaths rise, vape growth has notably slowed in the U.S. market. That raises near-term and intermediate concerns for the U.S. vape industry, as well as Canada's. As a reminder, derivative pot products, including vapes, become legal in Canada this coming Thursday, Oct. 17, although they won't be available for purchase until sometime in mid-December.

Since vaping sales are expected to lead all other derivative product sales, there's clear concern among investors.

These pot stocks are immune to the vape health scare

Now, for a bit of good news.

Despite these very relevant concerns tied to vaping, there's a trio of marijuana stocks in an ancillary niche of the pot industry that should be completely immune to this health scare. Ladies, gentlemen, and investors alike, say hello to extraction-service providers Neptune Wellness Solutions (NASDAQ:NEPT), Valens GroWorks (OTC:VGWCF), and MediPharm Labs (OTC:MEDIF). And by "extraction," I mean they take cannabis and/or hemp biomass and processes it to yield resins, distillates, concentrates, targeted cannabinoids, and even white-label packaging and products.

What makes these cannabis stocks so unique is that they provide the building blocks of the high-margin derivative industry. Compared to dried cannabis flower, derivatives, such as vapes, edibles, topicals, concentrates, and beverages, generate much juicier margins. Since Canadian weed companies have witnessed what's happened in states like Oregon, where dried flower oversupply and commoditization have hit the legal pot industry hard, each and every major marijuana grower throughout North America has a plan to make derivatives a significant component of their long-term growth strategy. This makes Neptune Wellness, Valens GroWorks, and MediPharm Labs indispensable.

Furthermore, extraction-service companies are operating on a fee-based contract. What that means is pot growers aren't simply coming to these companies with one-time deals. Rather, Neptune, Valens, and MediPharm are locking their clients into 18- to 36-month agreements. These intermediate-term contracts add certainty and predictability to an industry with virtually no certainty and predictability at the moment.

And make no mistake about it, this extraction-service providers has wrangled up an impressive set of clients. Neptune Wellness signed the largest aggregate extraction agreement in history earlier this year: a 230,000-kilo deal with The Green Organic Dutchman spanning three years. Valens, meanwhile, has a two-year agreement in place with HEXO for 80,000 total kilos and a 60,000-kilo-per-year agreement with Tilray. MediPharm's biggest deal to date is a $30 million contract to provide concentrates to Cronos Group over an 18-month period.

The point is that these extracted resins, distillates, concentrates, and cannabinoids are vital for all types of derivatives, and not just vapes, setting this trio of extraction-service providers up for years of success, vaping health scare or not.

New research from Roy Morgan shows increasing numbers of Australians across all age groups want to legalise marijuana – although 49% remain opposed.

Overall, 42% of Australians now support legalisation of marijuana, up 9% points in just four years. The percentage who say marijuana should remain illegal is down 7% over the same period to 49%. A further 9% are undecided.

Australians aged 18 to 34 years old are the most likely to support the legalisation of marijuana. This is also the segment of the population where opinion has shifted to the greatest degree over the last four years. In 2015 only 36% of 18 to 24 year-olds supported legalisation, now 50% do. The next age-group up, 25 to 34 year-olds, has also seen a dramatic rise in support, from 34% in 2015 to 46% now. These are the two age groups in which support for legalisation is higher than opposition to the idea.

These are the latest findings from the Roy Morgan Single Source survey, derived from in-depth face-to-face interviews with over 50,000 Australians each year in their homes.

“The ACT Legislative Assembly’s decision to legalise the possession, use and cultivation of small amounts of cannabis has brought Australia’s laws surrounding marijuana firmly back into the national spotlight,” says Roy Morgan CEO Michele Levine. "The decision certainly reflects the evolving mood of the ACT electorate: 47% of ACT residents want to see marijuana legalised – up 14% points from 2015 and a higher level of support for legalisation than in any of Australia’s six States. At 40%, those ACT residents who don’t support the legalisation of marijuana are in the minority.”

“The changing attitudes towards marijuana use in Australia follow well-publicised legislative changes in the US in which the use of cannabis is now fully legal in 11 States and the use of medicinal cannabis is allowed in 33 States. The trend towards legalisation of the use of cannabis in the US is continuing and the ACT’s legislation marks a step in that direction in Australia”  said Levine.

Perhaps surprisingly the two groups most opposed to the legalisation of marijuana are the youngest and oldest Australians. Only a little over a quarter of 14-17yr olds (26%) and a third of those aged 65+ (33%) support such a move.

Proponents of marijuana legalisation are young, Socially Aware and progressive 

A quintessential supporter of legalising marijuana is a younger man living the single life without any children. He’s most likely to be part of the Socially Aware Roy Morgan Values Segment – ‘With a strong sense of social responsibility and a propensity for convincing others of their opinions, they often become involved in pressure groups. Common occupations include public servants, politicians and researchers.’

Those advocating for legalising marijuana are more likely than other Australians to agree with environmental concerns such as ‘At heart I’m an environmentalist’ and ‘If we don’t act now we’ll never control our environmental problems’.

They are also more likely to share progressive views such as ‘Homosexual couples should be allowed to adopt children’. In addition they are more likely to be ‘always ready to try new and different products’  and ‘more interested in their job than their house’.

Those against legalising marijuana are older and with more traditional views

A quintessential supporter of leaving marijuana illegal is an older woman who has already retired. She’s a light spender and when it comes to the Roy Morgan Values Segments likely to be a part of Traditional Family Life – ‘With a strong focus on family they spend time and energy getting the family to visit them, babysitting, weekend BBQs and buying lollies for the grandkids when their parents won’t let them have any.’

She’s more likely than the average Australian to agree that ‘Crime is a growing problem in her community’ and ‘Globalisation brings more problems than it solves’ but also more likely to give the Government the benefit of the doubt and agree that ‘The Government is doing a good job running the country’.

Attitude towards marijuana legalisation by age in 2019

Source: Roy Morgan Single Source Australia, Jul 2018-Jun 2019, n=14,383 and Jul 2014–Jun 2015, n=15,867. Base: Australians aged 14+.

A bill introduced by lawmakers in Washington, D.C. recently would remove possession of cannabis as grounds for deportation under federal law. Under the bill, the Remove Marijuana from Deportable Offenses Act (S. 2021), the offenses for which an undocumented immigrant could be deported would be amended. The bill was introduced by Democratic Sen. Cory Booker of New Jersey in June and in the House last month with an identical companion bill from fellow Democrat Assistant Speaker Ray Ben Luján of New Mexico.

“This Administration’s efforts to use marijuana possession as a tool for deportation is misguided and does not make our communities safer,” said Booker in a press release. “Limited law enforcement resources should not be wasted on deporting people for something two of the last three presidents have admitted to doing. This legislation will remove another one of ICE’s weapons that have been deployed to execute this Administration’s hardline immigration policy.”

Why This Bill is Necessary

With the bill, the Immigration and Nationality Act would be amended, adding the phrase “other than the distribution of marijuana” to the section that defines “illicit trafficking in a controlled substance” as an offense that warrants the deportation of an undocumented immigrant.

The measure also adds that “any offenses involving the use, possession, or distribution of marijuana shall not be considered as grounds of inadmissibility.” The bill would also allow immigrants who have been deported or denied a visa to reapply for admission to the country or have their visa reissued.

“The Trump administration’s decision to use marijuana as a weapon against our immigrant communities is despicable,” said Luján. “The federal government should not be wasting resources to wreak havoc on immigrant families when there are children held in border camps that are desperate for legal services, hygiene products, and basic humanitarian care. Providing care for these children and families should be where the Trump administration devotes its funding—not working as a deportation force.”

“I’m proud to be fighting for this legislation to hold President Trump accountable and defend our immigrant communities from senseless and hateful policies,” he added.

More than 34,000 immigrants were deported between 2007 and 2012 for marijuana possession, according to a report from Human Rights Watch. Since President Trump rescinded guidelines that listed misdemeanor offenders and cannabis convictions as a low priority, the crisis has worsened, according to Luján’s office. He adds that “this anti-immigrant agenda from the Trump administration stands in contrast to the policies of dozens of states that have legalized or decriminalized marijuana use and possession.”