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KushCo CEO Says Concerns About Illicit Vapes Could Bring New Opportunities

As experts scramble to determine the cause of the vaping-related illnesses blamed for at least 18 deaths, vaping companies are trying to figure out how to move forward. Nick Kovacevich, co-founder, CEO, and chairman of KushCo Holdings, said that a renewed focus on illicit products could offer an opportunity for legitimate businesses to serve new customers.
"Now that there's a serious health issue with some of these vaping products, consumer awareness is changing and they're thinking, 'Maybe I shouldn't trust the product I get off the street. Maybe I should go to the legal channel, where its tested and screened, and pick up product that I know is safe,'" Kovacevich told Cheddar.
The Centers for Disease Control and Prevention released an updated report on Thursday linking the deaths and 1,080 illnesses to vaping products. Just last week, new information from the agency heavily implicated THC vaping products, especially those obtained through informal means, like on the street, or from dealers, friends, or family. A report from officials in Illinois and Wisconsin even linked specific illicit brands, like Dank Vapes, to the rash of illnesses, but experts at CDC and Mayo Clinic, which published its own report on Wednesday, have been careful to emphasize they don't yet know what specific chemicals or ingredients are making people sick.
This new focus on illicit vape products means companies within, and ancillary to, the cannabis industry, like KushCo, are breathing easier ー albeit cautiously.
"It was really a vape conversation, and now some new data has come out and it's becoming a black market conversation," Kovacevich told Cheddar.
The fear surrounding vape products has had a noticeable impact on sales of vape pens and cartridges, which are among the most popular and fastest growing ways to consume cannabis, according to Leafly. Data from a recent report by cannabis analytics company Headset showed a noticeable drop in sales in states like California, Colorado, Nevada, and Washington between the last week of August 2019, just before the vape crisis broke in the news, and the end of September.
As an ancillary cannabis company that sells vape products and accessories, packaging, and branding solutions to support the cannabis industry, KushCo claims a substantial portion of its revenue from vaping products. Shares were down last about 67 percent within the past three months, and 68 percent year-to-date.
However, there are signs of hope for vape companies. Headset's data shows stabilization in vape sales in recent weeks in California, Nevada, and Washington.
"Moving forward, we could see Vapor Pen sales increase if consumers in adult use states move their purchases from the black market and into licensed dispensaries where they can be confident they will be able to purchase fully regulated and tested products," Headset wrote in its report.
Kovacevich echoed the sentiment.
"This migration from black market to legal market is going to be gigantic. We are going to be right there to take advantage of it," he said. "We actually just raised a bunch of capital, we did a $30 million capital raise last week to prepare for the opportunity that we know is coming from this issue."
In addition to the $30 million direct listing KushCo announced last week, the company also recently partnered with De La Rue, an anti-counterfeiting company, to provide anti-counterfeit security labels. Kovacevich said the partnership already has "30 to 40 companies lining up" for its anti-counterfeit stickers.
"Amidst all this chaos is a lot of opportunity. The market is definitely missing that, which is why our stock has gone down," he said.
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