Some marijuana investors may have quietly suspected the outbreak of hundreds of respiratory illnesses and at least 14 deaths among the "vaping" crowd was closely linked to the usage of tetrahydrocannabinol (THC), or the component of marijuana that creates a psychotropic euphoria. But it wasn't until Friday of last week the U.S. Food and Drug Administration (FDA) explicitly said as much when it warned all consumers to stop vaping any product containing THC.

It's not an outright ban, to be clear, and the FDA concedes it will need to do more work in order to establish a cause and effect relationship. Many of the reported health problems appear to be caused by tainted black-market cannabis, as well.

Nevertheless, given that 76.9% of the 805 reported illnesses reported to date have involved individuals who had combined the use of nicotine and THC within 30 days of their symptoms, it's not a stretch to say consumers will now think twice before taking a drag from a vaporizer -- or vape.

That's a problem for some cannabis companies like Aurora Cannabis (NYSE:ACB) and KushCo (OTC:KSHB) both of which saw vaping as a key part of their growth plans. Aurora was the first licensed pot producer to launch a vape-ready CBD oil cartridge when Canada legalized marijuana a year ago, while the bulk of KushCo's business is vapes and related consumables.

Conversely, it's a paradigm shift that favors outfits like HEXO (NYSE:HEXO), which has been working on the development of cannabis edibles and beverages.

FDA recommends not vaping THC

There was no ambiguity about the FDA's stance. In light of recent developments, the regulator bluntly wrote, "Do not use vaping products that contain THC" in a public statement, adding, "Do not modify or add any substances, such as THC or other oils, to vaping products, including those purchased through retail establishments."

Insiders and followers of the cannabis-legalization movement have been quick to push back on the idea that vaping in and of itself is inherently dangerous. Just days before the official FDA warning, for instance, Aphria's (NYSE:APHA) interim CEO Irwin Simon said the panic "shows why legalized vaping is so important, why it's controlled and regulated through an approved market."

Canopy Growth (NYSE:CGC) CEO Mark Zekulin also clearly stated in September -- when the vaping-related crisis was in full swing -- that "we're ready to launch vape products into Canada," adding, like Aphria's Simon, "and the difference is this is really a regulated environment, so there are rules that will govern the products that we put to market."

They may be right in that regard. The bulk of the illnesses to date have stemmed from the combination of nicotine and THC that was provided outside of regulatory channels. Only 36% of the known respiratory problems were the result of using THC by itself.

Still, a perceived one in three chance of developing some sort of potentially fatal health problem is more than enough risk to make even the most die-hard marijuana fans think twice about inhaling anything but air.

Winners and losers from the warning

Although vaping has been around for more than a decade, vaping marijuana (for its THC) is a fairly new phenomenon. Legalization in some parts of the U.S. and in all of Canada has helped expand the market, legitimate as well as illicit.

Seeing where the market was headed, the cannabis industry has been moving to meet its targeted consumers where they wanted to go. Cronos Group (NASDAQ:CRON), as an example, just inked a deal with MediPharm Labs (OTC:MEDIF) to supply vaporizer pens to power sales of its COVE brand consumables. Canopy Growth has also been prepping a new lineup of vapes. During Aurora's fourth-quarter conference call, CCO Cam Battley acknowledged the company had made a significant investment in vaping, which in May he described as "a terrific market segment that doesn't need a lot of market development."

Given the hard data that's been gathered in the U.S. in the meantime, though -- along with the FDA's firm stance -- even a more regulated environment may not be enough to help Canopy Growth or Aurora Cannabis compel would-be cannabis vapers in Canada to give the alternative a try.

At the other end of the spectrum, edibles have suddenly become a compelling alternative to the alternative. That's to say, if neither inhaling the smoke of slow-burning cannabis nor a heat-vaporized source of THC is palatable, then ingesting cannabis for recreational purposes turns into a marketable consumer option.

That shift favors names like HEXO, which is co-developing a cannabis-infused beverage with Molson Coors Brewing (NYSE:TAP). Their first drink is slated to debut in Canada in December. While the co-venture wasn't initially intended to bring a THC-based drink to the market, HEXO's next partner may well be a food brand that fills the growing void if the THC market's complexion is shifting.

Other edibles names stand to gain, too.

Vaping ambitions go up in smoke

As is stands right now, there are more questions than answers. Chief among those questions is whether or not the FDA will be able to identify a specific causation for the surge in lung illnesses. It's arguable that the 805 reported illnesses as of late September represent the most aggressive users/abusers of a product that wouldn't be quite as dangerous if used more responsibly.

Nevertheless, cannabis is already a contentious issue. While most Americans are now pro-legalization, a faction among the 34% of the population against it tend to be adamantly, vocally against it. They're likely to use the recent fatalities as a weapon of sorts. The FDA may also take sweeping action, as it, too, appears caught off guard. Both factors ultimately work against vaping and related marijuana players.

That prospect leaves cannabis investors in something of a lurch. The uncertainty of how important vaping was and still is to growth plans leaves investors guessing about what's next. Canopy Growth, for example, was prepping for a major launch of a vape-pen line, but vaporizing doesn't yet account for a significant portion of its revenue. It may be able to pivot with a limited degree of disruption.

Now what?

While the fallout from the FDA's new warning hasn't fully gelled, the agency tipped its hand on Friday. Investors would be wise to keep this developing story on their radars and start figuring out how vaporizing-dependent their favorite pot companies are or were intending to be.

At best, the cannabis industry's vaping names suddenly have a serious fight ahead -- if not a regulatory one, at least a perception-based one.

Hemp is a type of cannabis that contains less THC (tetrahydrocannabinol) and more of CBD (cannabidiol). THC is responsible for delivering the “high” associated with drugs. Notably, THC is dangerous when consumed in large quantities. However, CBD helps treat various health conditions. The Trump administration legalized hemp in December 2018. In September 2018, The Brightfield Group estimated that the CBD market would reach $22 billion by 2022. In June, Arcview Market Research and BDS Analytics projected that the US CBD market would reach $20 billion by 2024.

However, the FDA has only approved Epidiolex. Since the FDA hasn’t approved most CBD products, interstate distribution and product sales aren’t legal. Recently, US Senate Majority Leader Mitch McConnell asked the FDA to set the policy for CBD sales within 120 days. To learn more, read CBD Products: McConnell Wants FDA to Ease Regs. Now, we’ll discuss major hemp players’ growth initiation.

Aurora Cannabis

Aurora Cannabis (ACB) has been investing to acquire and form strategic partnerships with hemp-related businesses. In August, the company completed the acquisition of Hempco Food and Fiber. Aurora Cannabis said that the acquisition gave it access to high volume hemp with a lower CBD extraction cost. On Tuesday, Aurora Cannabis announced a partnership with CTT Pharmaceutical Holdings. The company introduced CTT’s cannabinoid-infused sublingual wafers in the Canadian market. To learn more, read Aurora Cannabis: New Product Launch with CTT Pharma.

In July, Aurora Cannabis announced that it would conduct a joint clinical research program with UFC. The company said that the research will assess whether CBD treats various ailments in MMA athletes. Aurora Cannabis said that the data from the study would be used to develop hemp-derived CBD topicals for athletes.

Canopy Growth

During Canopy Growth’s (CGC) (WEED) first-quarter earnings call, the company’s management said that it has been working to develop a portfolio of CBD products since the beginning of 2019. The company said that it’s securing production facilities in the US to bring CBD products to the market by the end of this year.

Canopy Growth’s management said that it established two offices in California and Colorado. The company also plans to open offices in Illinois and New York. Canopy Growth expects its extraction and production facility in Kirkwood, New York, to be ready by next year. In May, the company acquired “This Works,” which specializes in skincare and sleep solutions. The company is working to introduce a portfolio of CBD-infused skincare products.

On October 2, Canopy Growth acquired a majority stake in BioSteel Sports Nutrition. The company has entered the sports nutrition and hydration segment. Canopy Growth hopes that the acquisition will expand its CBD business in the US and across the world. To learn more, read Why Canopy Growth Acquired BioSteel Sports Nutrition.

Charlotte’s Web Holdings

Charlotte’s Web Holdings (CWBHF) produces and sells CBD oil tinctures, capsules, topicals, and pet products. To meet the growing demand for hemp, the company increased its planted acreage 187% to 862 acres this year. The company also expanded its retail presence to 8,000 retail locations by the end of the second quarter.

In July, Charlotte’s Web partnered with Rodale Institute and Natural Care to develop healthy agriculture practices in organic hemp farming. Later in July, the company announced the extension of its research work to develop hemp genetics for optimal growth along with The Center for Discovery in New York. On Wednesday, the company announced that it has partnered with Nielsen to provide insight into the CBD space to US consumer packaged goods companies.

Terpenes that come from cannabis are allowed in marijuana vapor products, but the presence of terpenes derived from any other source is prohibited under the ban.

On October 9, 2019, the Washington State Board of Health (“BOH”) voted to adopt emergency rules banning flavored vapor products, including marijuana products, in Washington State. The ban is effective as of October 10 and will run for 120 days.

It’s not as if we didn’t see this coming. On Monday, Hilary Bricken wrote on this blog that cannabis businesses should expect these types of vapor bans.  Previously, on September 27, Governor Jay Inslee issued an executive order requesting the BOH adopt rules banning flavored vapor products. This executive action is very similar to what we saw in Oregon related to flavored vaping products last Friday.

The Washington emergency rules define a “Flavored vapor product” as “any vapor product that imparts a characterizing flavor.” A characterizing flavor is “a distinguishable taste or aroma, or both, other than the taste or aroma of tobacco or marijuana or a taste or aroma derived from compounds or derivatives such as terpenes or terpenoids derived directly and solely from marijuana[,] or hemp plants that have been grown and tested as required by state law, imparted by a vapor product.”

This definition of a characterizing flavor does not include cannabis-derived terpenes. Terpenes are organic compounds found in a wide range of plants that produce flavor and aromas. Terpenes that come from cannabis, either hemp or marijuana, are allowed in marijuana vapor products but the presence of terpenes derived from any other source is prohibited under the ban.

The BOH’s definition of characterizing flavors includes some concrete examples including, “tastes or aromas relating to any fruit, chocolate, vanilla, honey, candy, cocoa, dessert, alcoholic beverage, menthol, mint, wintergreen, herb, or spice.” The definition also includes this unbelievably vague catch-all provision:

A vapor product does not have a characterizing flavor solely because of the use of additives or flavorings or the provision of ingredient information. It is the presence of a distinguishable taste or aroma, or both, that constitutes a characterizing flavor.

In other words, it may not matter what is added to a vapor product if there is the presence of taste or aroma. It remains to be seen how BOH and the LCB will determine what products have the presence of a distinguishable taste or aroma.

Marijuana licensees should expect the LCB to swiftly enforce this ban. Hours after the BOH issued the emergency rules, the LCB emailed licensees to confirm that processors and retailers are to immediately stop selling flavored vapor products. The LCB also indicated that it would follow up with options for returning or destroying products. In addition, the LCB indicated four action items that it is taking while health officials investigate vaping illnesses:

1. Signage. Prominently post this warning sign in retail locations. This required sign is co-branded with the Washington State Department of Health. A Spanish version, also available, may be posted as an additional sign.
2. Clarify rule regarding additives on packaging and labeling. There is some confusion among industry members that certain additives, like terpenes, imported CBD, and other cannabinoids do not need to be disclosed on packaging. Current rules require all product components on packaging (WAC 314-55-105).
3. Disclose to LCB all compounds (including ingredients, solvents, additives, etc.) used in the production and processing of products that are vaped and vaping devices themselves. Public health officials have requested assistance in gathering additional information about ingredients in vapor products.
4.  Cooperate with the ongoing epidemiological investigation. Local, state and federal health agencies are looking into which products have been involved with Washington cases of disease. We ask for your cooperation if you are contacted by someone from a state or federal epidemiology team and/or a representative from your local health jurisdiction.

It’s fair to say that there is a vaping crisis. It’s also fair for regulators to act in response to said crisis. However, given that there is really no evidence that flavored vapor products are causing these widespread illnesses, it’s also fair to say that this ban feels arbitrary and likely to cause great damage to an already struggling industry. Processors who rely on the sale of vapor products are likely not in a position to make this massive shift away from flavored products. Retailers, in turn, may try to return these flavored products to processors to recoup their losses or eat the cost of these now worthless products. Remember, these businesses cannot take out loans (not that banks would offer them) without going through a lengthy application process with the LCB; for many businesses, there are no funds available for a rapid change like this.

A few weeks ago I wrote critically about Donald Trump’s decision to ban vapor products at the federal level, saying that it would likely harm the regulated vapor market and help the illicit market. I was surprised to see Jay Inslee blindly follow Trump’s thinking here, especially when he has so frequently opposed this administration.

It’s been a crazy month for vape smokers. The CDC announced that there’s a lung injury outbreak associated with vaping, which has injured over 800 people and caused 12 deaths across multiple states. It’s an alarming set of statistics that have prompted rash decisions, with states outright banning vape products. With so much misinformation flying around, the least you can do is ensure that the product you’re vaping is legitimate.

Although there’s no foolproof method of protecting yourself against a tarnished product (this can happen to legitimate companies) there are many ways of cutting your risks.

Here are four tips that will help you stay safe.

Only purchase licensed products

If you stay away from the black market you’re eliminating exposing yourself to poor cartridges. Purchasing products from licensed sources guarantees that the cannabis used goes through strict testing. It’s also important to highlight that this vaping crisis has demonstrated no connections to cannabis. For the moment, there’s no immediate risk.

Watch out for ripoffs

Right now is not the time to experiment with strange products with too good to be true prices. It’s safer to spend some money and preserve your health. Buy certified products from dispensaries that have the appropriate licenses. Check the package of the cartridge and look for packaging date, lot number, batch number and date of manufacture. These details might not protect you completely, but they ensure that what you’re buying is legitimate.

Do your research

If you don’t live in a state with legalized marijuana, be careful with your purchases and do some research. Look up marijuana communities online and see what products people recommend. If you can get your hands on licensed products learn about brands and avoid experimenting. Look for brands that have been around for a couple of years, that are trusted by large amounts of people and that have an up to date presence on social media.

Quit vaping for a while

If you’re really concerned about this vape crisis, you can switch temporarily to smoking flower or consuming edibles, rosin or sift. Although vaping is extremely comfortable and discreet, it’s okay if your nerves are a little rattled. Luckily, there’s a lot of other cannabis options.