South Florida Sun-Sentinel Palm Beach (Sunday)
Vaping business faces crisis
Recent health scares, federal investigation cast dark cloud over Boca Raton company
A Boca Raton company that has built a multimillion-dollar business from vaping devices is being battered by the recent vaping health scare.
Aaron LoCascio was just 19 when he began selling vaporizers on eBay and then through his own site online. Now 34, he leads Greenlane Holdings, a wholesale supplier that sells devices to smoke shops, head shops, marijuana dispensaries and direct to consumers online. Greenlane is a major distributor of vape and accessory products, supplying more than 9,700 smoke shops and other retail locations, and hundreds of licensed cannabis cultivators, processors and dispensaries, according to securities filings.
But since federal investigators began looking into vape deaths and illnesses across the country, Greenlane’s stock price has plummeted more than 70% from $17 a share at its debut to about $3.40 in recent weeks.
As health and safety concerns over vaping mount, Greenlane is now among the many vaping-oriented companies in U.S. looking toward what comes next for the industry.
Vaping concerns
There have been at least 13 reported deaths and hundreds of lung illnesses in the U.S. related to vaping devices and electronic cigarettes used to inhale THC or nicotine. In Florida, there has been 27 reported cases of lung injury connected to vaping in Florida in 2019 and one death.
The vaping health issues are now under investigation by the Centers for Disease Control, Federal Drug Administration and Drug Enforcement Agency. President Trump called for a ban on flavored e-cigarettes, and states, including Massachusetts and Michigan, have moved to ban vape or flavored vape sales. Exactly what’s causing illnesses from vaping is still unknown, the CDC says. And no company has been tied to the ailments.
On its website, Greenlane says it is concerned about reports of health issues related to vaping, but adds, “We are not aware of any reports of health issues related to our products.” Greenlane points out that it “does not sell or produce cannabis oil — we exclusively sell empty vaporizer cartridge hardware to state-licensed businesses.”
Greenlane, a publicly held company headquartered in Boca Raton, distributes various brands of vaping devices — including tabletop versions, hand-held vape pods and pens — used to smoke or inhale tobacco, nicotine extracts, legal herbs, CBD and cannabis. It also sells pipes, rolling papers and other accessories.
As the company has grown, it has added more than 300 employees and now is one of dozens of businesses in the Park at Broken Sound, north of Yamato Road several blocks west of I-95. Greenlane bought its office building in 2018 for $10 million, according to property records.
Reached by phone Wednesday, L o C a s c i o s a i d h e wa s “t o o jammed” to do an interview. A New York City public relations firm called to say LoCascio wouldn’t be available for an interview anytime soon.
Greenlane said it is “one of the largest distributors” of Juul Labs products, in its stock offering statement. Juul is the California maker of e-cigarettes that has been under fire for sales of flavored e-cigarettes and its marketing. Amid growing health concerns, Juul recently agreed to stop advertising its electronic cigarettes in the U.S. and its CEO resigned.
Sales of Juul made up about 48% of Greenlane’s sales in the second quarter ended June 30, according to the company’s earnings release. Greenlane says on its site that it voluntarily stopped distributing flavored Juul products that were considered youth-oriented in 2018. “E-cigarettes and other vaping products should never be marketed or sold to minors,” Greenlane said.
Larry Schnurmacher, who founded Boca Raton-based venture capital fund Phyto Partners, said his firm made a “small” investment in Greenlane, because it distributes the tools and accessories for cannabis use, but not the plant itself. “We love the business,” he said.
While concerned about the company’s drop in value, the investor says he thinks Greenlane will rebound as vaping investigations uncover the cause of the health issues.
The outlook for the company is “strong,” as Greenlane supplies the “trifecta” of markets: marijuana, liquid nicotine and cannabidiol, LoCascio told Yahoo Finance in a video interview in April.
A blockbuster start
While he was a University of Central Florida accounting student in early 2000s, LoCascio visited a friend in California where he was introduced to the Volcano, a tabletop vaporizer by Storz & Bickel. A vaporizer slowly heats the cannabis flower so the user can inhale it and potentially avoid harmful toxins associated with smoking.
“I was extremely fascinated and intrigued by the product, and quickly recognized it as an opportunity,” seeing the product line as one that had “tremendous potential,” LoCascio said in an interview published this summer in a trade show magazine, Marijuana Retail Report.
So in 2005, LoCascio began his business, then called Warehouse Goods, by selling vaporizers on eBay.
He also began establishing partnerships with innovators in the industry, including Storz & Bickel, and Firefly, developer of a handheld vaporizer.
In 2011, LoCascio merged his company with a similar business operated by Adam Schoenfeld, 35, who is chief strategy officer and co-founder of Greenlane.
In April, Greenlane joined the ranks of public companies.
Dow Jones’ MarketWatch report called Greenlane’s initial public offering “the closest thing to a U.S. cannabis company to go public on Nasdaq,” or any U.S. exchange. Greenlane was able to sell stock in the U.S. because it is not a cannabis operator, but an intermediary between manufacturer and retailer.
The stock opened at $17 a share and surged to $29, and the company raised more than $100 million, with the announced goal of making acquisitions.
Greenlane brought attention to its relationship with Juul in its stock offering statements and interviews.
In its securities registration statement, Greenlane said it was “one of the largest distributors of products made by Juul Labs,” and noted that it had sold more than $65 million of Juul products in 2018.
And in the Yahoo Finance interview when the company went public, LoCascio told his interviewers who asked about vape issues, “we very carefully select who we partner with — one of our largest partners is Juul.”
Greenlane’s sales have soared. Second-quarter sales were $53 million, up 30% over a year ago, beating Wall Street analysts’ estimates. The company has posted nearly $21 million in losses for the first half of the year, reflecting cost of going public and expansion, Greenlane said in a news release.
Meanwhile, Greenlane is facing some lawsuits as its plunge in market value has rattled some investors.
In U.S. District Court, the Southern District of Florida, investor Chris Hammond has sued Greenlane alleging the company and its key executives provided “false and misleading information” in its stock offering materials concerning the e-cigarette ban in San Francisco and prohibit manufacture of the products at key partner Juul.
The lawsuit, filed Sept. 11 and seeking class action status, alleges the company’s action led to its decline in market value.
A spokeswoman for Greenlane called Hammond’s lawsuit “meritless.” “Greenlane made ample disclosures about Juul regulatory developments, which can be found in our prospectus,” she said.
The vaping health scare is having an impact on the industry as a whole, said David Hasenauer, president of the Hemp Industries Association in Tallahassee, a trade association for Florida’s new hemp industry members.
He doesn’t think Florida should ban vapes, but “if there’s an understanding that smoking something is probably harmful, apparently people still need to be warned.” Hasenauer said he would advocate for “more warnings and truth-in-labeling standards” on vape products, as Florida is pursuing with CBD and hemp sales.
Whatever the outcome of the vaping safety concerns, Greenlane is looking to grow.
During the second quarter, Greenlane expanded its CBD distribution agreements, including exclusive deals with Bloom Farms, Cookies, and Pax Era CBD products. In September, the company announced an expansion of Higher Standards, its shop for “cutting-edge” vaporizer devices, currently located in New York City and Atlanta. Greenlane also entered into an agreement to acquire a European wholesaler and retailer of vaporizers and accessories, to expand its global distribution.
LoCascio has said he wants the company to thrive. “I never want Greenlane to be one of those heretoday, gone-tomorrow stories,” LoCascio told MG Magazine, a cannabis industry publication, last year. “I’m always thinking about never losing sight, staying humble, being grateful for what I have, and making sure I never stop innovating, or else it could be gone tomorrow.”