Supply Chain Competition for Vape Segment Heats Up

Vape products have solidified their position as the second-largest segment in the U.S. cannabis industry,  according to a recent report by Zuanic & Associates. The product category now accounts for nearly a quarter of the total market.

“The category is growing mostly in line with the overall market, although vape outperforms in newer markets,” Pablo Zuanic wrote. In the third quarter, vape products grew 3% from the prior-year period.

But it’s not just retailers benefiting from the trend. Zuanic highlighted a $700 million market opportunity for U.S. vape parts suppliers, with the global market showing even more potential.

Annual cannabis vape sales in the U.S. have touched a run rate of $6.8 billion, with parts suppliers potentially capturing about 10% of that figure, according to the report. The global landscape is even more promising. Smoore International, owner of CCELL, saw its sales of vaping devices for “special purposes” skyrocket from $375 million to a staggering $1.2 billion in 2022.

But even with that impressive growth and a historic dominance in the segment, CCELL’s market share has nearly halved over the past four years, from around 80% to about 40%, Zuanic noted. Competitors, such as Advanced Vapor Devices and ALD Vapor, STIIIZY’s supplier, are stepping in to challenge the status quo and strengthen their positions.

One major event that marked this shift was a high-profile patent dispute initiated by CCELL in October 2021. The China-based vape behemoth filed a complaint with the U.S. International Trade Commission alleging patent infringements, but the commission sided with Advanced Vapor Devices in April 2023, affirming no violations of CCELL’s patents.

Despite the setbacks in court and market share losses, CCELL still has a consistent hold on its MSO client base.

“We believe that CCELL and its distributors will need to adapt (cost wise, price and margin wise, and in terms of capital commitment) to compete,” Zuanic wrote. “By the same token, vape market trends (larger containers, such as 1-2 milliliter versus the more traditional 0.5 milliliter), the rise in (all-in-one vape systems), new segments (live resin and rosin), create challenges and opportunities. Given its scale and R&D budget, we would assume Smoore/CCELL will be able to respond and start regaining market share.”

Demand Shift

The report also brought to light an emerging trend: a preference for all-in-one disposable vapes over traditional cartridges. The change was particularly pronounced in states like California, where the share of sales jumped from 11% to more than 23% between the third quarter of 2021 and 2023, according to Headset data.

But while the sector is expanding, it’s grappling with price deflation. In markets such as Massachusetts and Michigan, vape prices have plummeted by 37% and 33%, respectively. That deflation is pushing vape parts buyers to become more price-savvy, potentially leading to changes in buying behaviors.

“All else equal, both trends should make buyers of vape parts (i.e., processors, cannabis companies) more price sensitive,” Zuanic said. “Growth of cannabis vape disposables may also trigger regulatory challenges.”

Geographically, the report delineated variations in vape product popularity. Mature cannabis markets, including California, Colorado, and Washington, see vape penetration in the mid to high 20% range. In contrast, newer entrants to the cannabis scene, like Massachusetts and Michigan, lag slightly behind with penetration rates around 18%.

“(Pennsylvania) is an outlier with 37% vape penetration, as pre-rolls and edibles are not allowed,” Zuanic noted.

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