With the next wave of cannabis legalization looming, the business of pot is once again the business of mergers and acquisitions. If the last phase was all about production and distribution, this phase may be dominated by technology.
Specifically, vape pens.
They’re among a series of new products, including edibles, beverages and extracts, that will be for sale legally in Canada in mid-December.
Which explains why Canadian cannabis company Auxly Cannabis Group Inc. has teamed up with British tobacco giant Imperial Brands in a deal worth more than $120 million. Imperial gets a foothold in the cannabis market and Auxly gets exclusive access to Imperial’s vape IP, technology and research.
The partnership “accelerates Auxly’s plan to go heavily into the recreational market,” said Auxly CEO Chuck Rifici. “Particularly, the vape category, which we think will be very large.”
In fact, analysts say vaping could become the driving force of the recreational cannabis market.
Chris Damas, editor of the BCMI Cannabis Report says of all the new products coming on line, from vape products to edibles and everything in between, vape pens will make up half of all derivative sales.
Rifici says when given a choice between rolled joints to smoke and vape pens, consumers have voted with their money.
“We’ve seen from the market data south of the border and anecdotally across Canada in unlicensed dispensaries,” he said. “People seem to disproportionately choose vape devices.”
Part of that, he says, is the ease and discretion of using a vape pen. Once legal, the pens will come with pre-loaded cartridges of cannabis extract. With the push of a button, the extract is vaporized (hence the term “vape pen”). Instead of smoke, the user inhales vapour.
Vape pens and e-cigarettes have become wildly popular as an alternative to smoking cigarettes (though the jury is out on whether they’re a much healthier alternative). And tobacco companies have been researching, developing and acquiring vape IP for years.
Last December, tobacco giant Altria, parent company of Philip Morris USA, the maker of Marlboro cigarettes, made headlines when it announced it was buying a $2.4-billion chunk of the Canadian cannabis company Cronos.
A couple weeks later, Altria spent $12.8 billion US for a 35 per cent stake in Juul, which is easily the most popular brand of vape pen for tobacco users.
Rifici says Auxly’s new partner, Imperial Brands, has spent billions of dollars on research, and billions more on acquiring vape technology and intellectual property.
Damas, editor of the BCMI Cannabis Report, says all the large licensed cannabis producers in Canada have been scrambling to prepare for the initiation of vape pen sales in late 2019 or early 2020.
“Aphria, Aurora, Organigram and Supreme cut deals with PAX Labs to be in a position to sell vape cartridges rather than try to develop their own,” Damas said in an email.