DENVER, May 8, 2019 /PRNewswire/ -- The growth of vaping has led to the emergence of a new sector.
- Vaping is tied to the tobacco and cannabis industries but has become popular as a healthier delivery system for both products.
- Investment and mergers are fueling the industry's expansion.
- Working smarter in the competitive market may be savvy strategy.
Many companies are jockeying for position in this new space. Interestingly, some of the more successful companies may not necessarily be the big players but those that work smart with what they have. Among these smaller smart companies is VPR Brands LP (OTC:VPRB) (Profile), which has used innovative products and marketing tactics to expand its customer base. At the opposite end of the spectrum is Altria Group Inc. (NYSE:MO), a tobacco giant that has invested heavily in vaping. Greenlane Holdings Inc. (NASDAQ:GNLN) works on the distribution side and has impressive reach, supplying nearly 10,000 stores and two major online outlets. KushCo Holdings Inc (OTC:KSHB) has moved successfully from packaging into cannabis. Thanks to cannabis-based medicines such as those created by GW Pharmaceuticals Plc (NASDAQ:GWPH), vaping may even develop a place in medical care.
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Vaping Takes Off
Vaping has taken off in a huge way over the past few years. One in 20 American adults now vapes, and the habit has gained global popularity as an alternative to smoking. This trend has led to the rise of companies providing vaping products, primarily the hardware and the fluids used to manufacture those products. The industry, which didn't even exist just over a decade ago, was valued at more than $7 billion in 2016 and has kept on growing, with observers predicting that it will reach an estimated $47 billion by 2025.
The market is already being shaped by a number of larger and seemingly more profitable vaping companies. But with the whole industry still so young, the space seems full of flux and uncertainty. Smaller companies are sometimes proving more profitable in practice, and there's potential for the balance of influence to be transformed.
An Active Market
The vaping market is still going through the early stages of development. Smaller companies such as VPR Brands LP (OTC:VPRB) can compete with established big names because even those names are relatively new in the sector. With only a decade of development, none of these businesses can claim the sort of extended heritage and track record provided by leading tobacco and alcohol brands.
The vaping industry has found its moment through the arrival of two important but conflicting trends: a shift away from smoking and the rise of legal cannabis.
In western countries, millions of people are trying to give up smoking because of its harmful health effects. Older substitutes such as nicotine patches and gum don't provide the sense of ritual or social experience that smoking does, but vaping can fill that niche. That option appears to be a popular choice among ex-smokers.
At the same time, cannabis has been legalized across swathes of North America and beyond. Whether used for medicine or recreation, the plant is often at its most effective when inhaled, and as with tobacco, this is part of the ritual surrounding it.
However, at a time when the public is becoming more health conscious, straightforward smoking is unappealing to many, thus leading to vaping appearing to be a more attractive alternative. VPR Brands has seen success by providing a range of vaping products that fits the needs of cannabis consumers. By providing an alternative way to consume the active chemicals from cannabis, vaping companies are saving cannabis consumers from a return to smoking.
Mergers, Acquisitions and Investment
Investors have been quick to see the opportunity that this trend has created. Money has flowed into vaping companies, allowing them to continue research, development and marketing of new products.
Business journalists and commentators have been following this trend. A senior analyst at Cowen recently pointed out that vaping is underrated as a factor in the cannabis sector, where much of the attention is on smoking and edibles. VPR Brands has seen coverage in the press as "one to watch," thanks in part to its high-quality vaping products.
Even the big rivals to vaping are getting in on the act. The company behind Marlboro cigarettes has made a substantial investment in an e-cigarette company. While established companies may prefer their business models continue as they are, savvy businesses recognize the need to adapt with the times, and fear of missing out has many companies scrambling to get in on the new market.
Vaping and CBD
Vaping plays a particularly prominent part in the CBD market.
CBD is a chemical derived from cannabis but without the psychotropic properties of THC. The plant is more widely legal for sale than other cannabis products, and production has become easier since December, when U.S. authorities legalized the cultivation of hemp, a variant of cannabis rich in CBD but without THC. CBD has become its own growing market within and around the cannabis industry, and smart companies have moved to make the most of the opportunity it offers.
VPR Brands has built a product line specifically for this market, creating not only CBD oils but vaporizers designed to work well with CBD. Its Goldline brand consists of CBD products including vaping liquids and vaporizers. VPR also aims to reach CBD consumers who don't vape, through edibles such as Honeysticks, made of CBD-infused honey.
Marketing these products hasn't always been straightforward. Legal questions over the status of CBD meant that CBD products weren't allowed at the National Association of Convenience Stores expo in 2018, despite their popularity in some stores. VPR Brands transcended this marketing obstacle through hemp products that didn't contain CBD but instead acted as ambassadors for the Goldline brand. With recent legal changes, it's unlikely that even these obstacles will be in place for long.
David Versus Goliath
In this surging and shifting market, victory doesn't always go to the biggest companies. In fact, smaller brands are often able to outperform larger ones in key areas, providing they work smart.
Large companies sometimes rely on soaking up losses to let them ride to profit in the long term. Smaller companies, such as VPR Brands that can't afford those losses, have to work smarter, aiming at obtaining better results. VPR's seasoned management team, including veterans of Vapor Corp., have developed a fiscally smart strategy that minimizes outstanding shares and reduces operating losses while increasing sales.
One of the strongest indicators of VPR Brands' performance is its debt-to-sales ratio. The company is currently selling five times as much as it is borrowing, in contrast with competitor ratios that in some cases average two to one. Who's winning on vaping depends upon how success is measured, and larger companies inevitably have more cash coming in. But when those numbers are balanced against losses, the smaller rivals, forced by necessity to work smart, may evolve into more effective players and triumph in the long term.
The State of Vaping
A variety of companies, both big and small, are operating in the vaping space.
One of the biggest players is the Altria Group Inc. (NYSE:MO). One of the world's largest tobacco producers, Altria is the corporation behind such famous cigarette brands as Marlboro and Benson & Hedges. The company recently acquired a $12.8 billion stake in Juul Labs, the biggest player in the vaping industry, in a move designed to give it a piece of this fast-growing market. With decades of experience grappling with government regulation, Altria's expertise is likely to shape the future of the vaping market far beyond its own share of the pie.
Greenlane Holdings Inc. (NASDAQ:GNLN) is a leading business in the distribution of vaping products. Its customers in the United States and Canada cover nearly 10,000 retail locations. The company also operates two of the most visited North American direct-to-consumer e-commerce websites for vaping. The company went public on the Nasdaq in April this year, making it one of the biggest cannabis-related companies available for trade on a major U.S. exchange.
KushCo Holdings Inc (OTC:KSHB) entered the sector from packaging solutions, an unglamorous but vital part of the industry. The company has since moved heavily into the cannabis sector, creating a one-stop shop for cannabis products that places it squarely in competition with others in the CBD and vaporizing markets. The move has resulted in the company posting its all-time high revenue in the latest quarter. KushCo also recently secured long-term supply arrangements with three large companies, which are predicted to provide $75 million.
Unlike traditional smoking, vaping is finding a place in the medical sector. The use of CBD and other active ingredients from cannabis to treat a range of ailments means that vaping may provide a way to consume medicines. GW Pharmaceuticals Plc (NASDAQ:GWPH) is working on cannabis-derived medicines, with a particular focus on tackling forms of epilepsy, for which it is currently presenting data on successful trials.
Vaping has become an important part of the combined tobacco and cannabis markets, and as its reach grows, so will the companies providing it.
For more information about VPR Brands LP, please visit VPR Brands LP (OTC:VPRB).
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