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Chinese vapes, cannabis M&A, and Prince Harry

Liam Kelly

Mar 6, 2023

Chinese vapes

Here’s another great Bloomberg newsletter for you: The Dose.

Last week, Kevin Simauchi wrote about a battle brewing over Chinese vapes:

China may outlaw cannabis consumption, but that hasn’t prevented Shenzhen Smoore Technology and other Chinese companies from becoming critical suppliers of the vape pens used by US marijuana consumers.
Smoore is currently embroiled in a legal battle with New York-based Blinc Group over its intellectual property. It’s being closely watched in the $4.6 billion US vape pen market, which trails only the flower itself in marijuana-related spending, according to cannabis data provider Headset. A judge at the International Trade Commission made an initial determination in early February that Blinc didn’t violate three of Smoore’s patents.
It’s the latest step in a 16 month-long investigation. At stake is the industry of vape hardware, which has already seen questions about whether heated components or ingredients in e-liquids can expose the lungs to toxins. If Blinc prevails, it could give US consumers more choice when it comes to vape paraphernalia.
If the initial ruling is reversed, it could crimp Blinc’s ability to import components to produce its vapes. Smoore has requested a review of Judge Clark Cheney’s opinion with the trade panel’s board of commissioners. Should the panel’s commissioners side with Cheney, Smoore can still appeal to a federal court. As a last resort, the president also has the power to review and veto decisions from the ITC — although it would be unlikely that he would rule in favor of a Chinese company.

This newsletter isn’t really into vaping, but it’s apparently big business. Smoore is trying to argue that their US subsidiary needs protecting, as other US companies are infringing on their patents. But the subsidiary is just importing Smoore products from China — the same thing that Blinc is doing with other suppliers — and, besides, a judge ruled that they acquired those patents improperly.

Blinc says that allowing them to continue to import will improve the US market and bolster competition. 99% of vape products are assembled abroad, which has allowed Smoore’s parent company to amass a market capitalization over $7 billion. According to Headset, vape pens accounted for 24% of sales in 2022, growing 77% to reach $4.6 billion.

Elsewhere in vapes, TILT announced last week that they are bringing a new cartridge to market through their subsidiary Jupiter Research. And in the tobacco space, Altria exited its ill-fated stake in Juul to purchase another vaping company, Njoy, for $2.75 billion in cash. Here’s hoping the seller of Marlboro loses a few more billions.

And check out this thread for some real cannabis industry opinions on vapes:

Chris Becker 🐝 @chris_honeybee

Vapes are like the instant coffee of weed… Kinda sorta does the trick but tastes off and is never satisfying

More cannabis finance newsletters

Here’s another cannabis finance newsletter for you, because you can never have enough cannabis finance newsletters. Marc Hauser at Hauser Advisory broke down why we may not be seeing much distressed-asset investing in cannabis, with the primary reason being:

Liabilities – to me, the biggest problem holding back a robust M&A market in cannabis is liabilities. In nearly all US jurisdictions, a commercial cannabis license may not be transferred as a separate asset (I think Nevada is the only state that allows it, but, as you should know by now, this is not legal advice) - the entity that owns the license needs to be sold instead. The buyer can’t just cherry pick assets.

When you buy another company, the price you pay is called the Enterprise Value, which is assets plus liabilities. In distressed M&A, the buyer probably doesn’t want those liabilities; the company is distressed, and the liabilities are scary. Generally, the buyer can get around this by just buying the assets they want. Regulations in cannabis, however, prevent this — you need to buy everything, or nothing.

So, while there my be bargains on cannabis assets, financial restraints and unfavorable deal dynamics may keep the big players on the sidelines for now. Stay tuned!

Prince Harry

This newsletter doesn’t support the Crown (they were not very nice to my ancestors), but it does support a fellow ginger oversharing about his mental health online:

Trauma expert Dr Gabor Mate spoke of the way people used drugs to deal with problems in their lives before asking Harry's about his reasons for using drugs including cocaine and cannabis.
'The first one you mentioned, that didn't do anything for me, it was more a social thing. It gave me a sense of belonging and probably also made me feel different to the way I was feeling,' Harry said.
'Marijuana is different, that actually did really help me.'

Preach it Harry! Of course, because this is the UK and he’s the prince, anti-drug activists took the opportunity to blast him online.1 Cannabis is a Class B drug in the UK, meaning it carries penalties of up to five years for possession and up to 14 years for supply or production. There was even talk last year of upgrading cannabis to Class A, the same as heroin and cocaine.

My writer’s dashboard says I have readers in the UK. Does anyone want to write a guest column on UK cannabis culture, policy, and politics? Reply to this email if you’re interested! Money Puff is going global!

Other Puff

Presumably after spitting out their afternoon tea in shock.