Industry Snapshot: Vaporizers

Niche Overview

Data, trends and challenges

by John Schroyer

LAST NOVEMBER, OXFORD Dictionaries selected “vape” as its word of the year. “You are 30 times more likely to come across the word ’vape’ than you were two years ago, and usage has more than doubled in the past year,” Oxford wrote on its blog in explaining the selection. The meteoric rise of vaporizers – including those used to consume nicotine as well as cannabis – has paralleled the rise of the marijuana industry.

Vaporizer companies, both marijuana-centric and otherwise, have proliferated in recent years to the point where even top players in the industry have no clue how many competitors are out there.

What a lot of entrepreneurs do recognize, however, is that there’s a business opening. Vaporizers – especially slim, inconspicuous portable ones – are more in demand than ever, and there’s a race underway across the United States and even the globe as companies try to position themselves as the go-to vape brand.

“We all do the same thing. May the best brand win,” said Graham Gibson, the president and chief executive officer of KandyPens.

Here’s a closer look at this segment of the marijuana industry:

Market Dynamics

Many in the vaping industry estimate that there are hundreds of competing companies, largely due to the fact that it’s relatively easy for startups to purchase inexpensive vape pens from China on the wholesale market and rebrand the devices as their own.

“There’s at least a couple hundred vaporizers that you can use with cannabis, that range from pens to big desktop ones. And there are always more coming out,” said Jason Azurmendi, marketing manager for Haze Technologies. “It’s a very big and booming market, with tons of different products but very few quality ones.”

Indeed, many companies have seen their revenues skyrocket in recent years. Some examples that illustrate the rapid growth:

  • Haze’s sales have at least doubled since just last September, Azurmendi said. A big reason for the spike: A Haze vaporizer was included in gift bags for guests of the Academy Awards in February, giving the company unprecedented exposure.
  • O.penVape’s revenues grew by more than 1,000% between 2012 and 2013, according to Chief Financial Officer Steve Berg. The company – which specializes in vaporizers that work with marijuana-based oils and concentrates – expects further growth in coming years as more states legalize both medical and recreational cannabis.
  • KandyPens, founded in 2014, posted revenue in the “high seven figures” over the past year, according to Gibson.
  • UpToke has already pre-sold 15,000 of a new vaporizer that will begin shipping later this year.

Cost has become a big differentiator in the market. Vaporizers can run the gamut price-wise, from less than $100 to more than $600, depending on the technology behind the device, production costs, and quality. Marijuana vape companies often target a specific niche of the customer pool, based on the desired price point.

Business Hurdles

Though vaporizer companies aren’t always specific to the marijuana industry – many got going on the coattails of electronic cigarettes and still target that market as well, for instance – those that do focus on cannabis consumers often face the same business obstacles as other companies in the industry.

O.penVape’s Berg cited tax issues as a large financial problem for his firm, for example. And, of course, there’s the banking situation that cannabis companies – even those that don’t actually deal directly with marijuana – often face.

Jason Levin, the CEO of UpToke, said he’s had to deal with a wide range of hurdles, including convincing electronic component suppliers that he’s a reputable businessman and not just a run-of-the-mill “stoner.” That includes challenges in marketing, banking, payment processing and even securing parts from hardware supply stores.

“Everything that an electronics hardware startup has to deal with, along with everything that a cannabis company has to deal with, stacked on top of each other,” Levin said, when asked about obstacles UpToke has had to overcome.

Possibly the biggest challenge for many vaporizer companies, however, is branding, which can be a huge hurdle because the market is so flooded with vaporizer options.

“Trying to stick out as much as possible, and trying to find your niche both online and in the media, is definitely key,” Azurmendi said.

Vaporizer companies that also produce their own extracts and oils can also have problems with the cannabis supply chain. These businesses essentially need to manufacture the oils and concentrates in each state they want to sell them in, because it’s still federally illegal to transport cannabis across state lines. If there’s a supply shortfall in a given market, vaporizer companies that make their own oils and concentrates could have trouble trying to keep up with demand.

Trends to Watch

  • Expanding Markets

As more states relax their marijuana laws in coming years, that will mean more demand for the discreet, on-the-go type of vaporizers that an increasing number of companies are peddling. Vaporizers also could gain significant traction in emerging medical marijuana states such as Minnesota and New York, where raw cannabis sales are banned.

“Some of the states that are coming online are oil-only states,” Berg noted. “If for no other reason, that format is going to dictate a lot of consumption based on vaporizing.”

International demand is growing as well, and plenty of companies are filling orders from dozens of countries outside the United States.

  • More Investing

As a direct result of the expanding customer base, more money is flowing straight into vaporizer companies. UpToke’s Levin pitched ArcView investors in 2013 and raised $600,000 to fund the upcoming Spyre vaporizer. KandyPens is in its second round of fundraising after landing $175,000 from an Indiegogo online campaign in 2014 that lasted just two months. The company also recently partnered with Just Develop It, an investing firm that backs startups.

“I am constantly bombarded with venture capitalists and people trying to throw money at us because they want to be part of this, because it’s the future,” Gibson said.

  • Thinning of the Herd

The competition is so fierce that many insiders expect some of the less-competent businesses to start dying off.

In fact, that’s already happening. Dave Daily – the founder of Grav Labs, which traffics mainly in glass products but also in vaporizers – said he’s already seen plenty of vaporizer companies spring up seemingly overnight and go out of business just as quickly.

“My guess is one out of five survive,” Daily predicted. “I’ve chosen to not put a lot of time and assets into that because it’s so competitive.”

Branding therefore is an extremely important part of the equation for vape companies, and those that are rising to the top have built a solid reputation around a quality product.

  • Herb or Oil, Not Both?

Different consumers want different styles of cannabis, and the same is true for vaporizers. Although some might expect that a single do-it-all vaporizer might eventually dominate the market, KandyPens’ Gibson doesn’t believe the industry is headed in that direction.

His company has already produced and marketed a multi-functional vaporizer that works with both dry cannabis flower as well as oils and extracts. But the company’s flower-only vaporizer still consistently outsells it by a wide margin.

“People don’t want a device that does everything,” Gibson said. “They want a device that does one thing well.”

This doesn’t mean there isn’t a market for concentrate-based vaporizers; O.penVape is proof of that. But the future likely won’t be technological advances. It’ll be in honing the technology that already exists, and possibly adding a twist, like the built-in grinder featured in UpToke’s new vaporizer.