By Nichola Saminather
TORONTO, Sept 29 (Reuters) - A U.S. recommendation that consumers avoid vaping products containing the active ingredient in marijuana ahead of their legalization in Canada next month could be a blow to Canadian cannabis companies' hopes that the higher-margin products will help propel them to profitability.
The U.S. Centers for Disease Control and Prevention (CDC) said on Friday that an investigation into 805 confirmed or probable cases of vaping-related respiratory illnesses suggested that products containing THC, the psychoactive element in cannabis, likely played a role.
The heightened health concerns come at a time when Canadian cannabis companies, whose share prices have tumbled over disappointing sales and supply and quality hiccups, are investing millions of dollars into marijuana derivatives, including vape products.
While keeping a wary eye on U.S. developments, they are betting that already strict Canadian regulations will ensure the safety of their products.
The Horizons Marijuana Life Sciences Index ETF has dropped 54% since its Oct. 16 peak, the day before adult recreational use of cannabis flower and THC and CBD oils were legalized. CBD does not contain the compound that gets people high.
The vaping concerns have contributed to recent declines, and will continue to hurt shares, said Bruce Campbell, portfolio manager at Stonecastle Investment Management, which invests in cannabis stocks.
"It's a case of 'shoot first, ask questions later'," he said. "(Investors) probably do some quick back-of-the-envelope math and say, 'we're not going to see the sales we expected, so we're out'."
Analysts estimate that in some established U.S. markets, vape sales are down as much as 30%, with many marijuana consumers reverting to use of less profitable flower and oil products.
While a shift away from Canada's illicit cannabis vape market into legal dried flower is positive from a public health standpoint, prolonged uncertainty could hurt legal vape sales.
"These illnesses ... occurred using non-regulated products," said Jason Zandberg, research analyst at investment dealer PI Financial.
Investigators have pointed to vaping products containing THC or vitamin E acetate, a thickening agent often mixed with THC oil in the illicit market, as possible causes of the rash of serious lung problems.
"In theory, it should promote the legal market," Zandberg said. "But if you don't have very aggressive education behind these products, a good portion of the population doesn’t see the difference."