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Three New Developments: The Vaping Crisis, Stakes Are Raised For The Cannabis Industry

In the last week, and specifically the last twenty four hours, several new stories have emerged that raise the stakes for The Cannabis Industry by the Vaping Crisis. One story begs the question of whether the industry has the ability to self-regulate.

Leafy reports in their story released yesterday titled “California vape maker Kushy Punch caught making illegal products”  that, “Prompted by a tip, investigators at the California Department of Consumer Affairs served a search warrant on Thursday, Oct. 3, at a light industrial space in northwest Los Angeles’ Canoga Park district.”

According to Leafly, “There they found an illegal cannabis product manufacturing operation apparently operated by Kushy Punch, a legal state-licensed company. Authorities seized a number of finished products, including gummies in Kushy Punch packaging and disposable vaporizers in Kushy Vape packaging.”

A second development involves a statement issued yesterday by the FDA titled, “Statement on consumer warning to stop using THC vaping products amid ongoing investigation into lung illnesses”, directly threatening the significant revenue contribution that consumer vaporizing products contribute to licensed medical and adult-use operators throughout the US. This refers to all cannabis vape products across the country, not just revenues effected in the states whose governors have stopped the sale of flavored vaping products (Michigan, New York and Washington) or all vape products as in Massachusetts.

A third development, reported by CBE contributor Ian Stewart this past Tuesday titled, “The First of the Vape-Lung Product Liability Cases Has Been Filed“, highlights the issue of whether insurers will find it financially viable to underwrite licensees in light of the pending waive of product liability suits that inevitably will hit the industry. This was predicted by another CBE contributor, Steve Schain last year in “Preparing for Marijuana Industry Lawsuit Tidal Wave: The Claims (Part I) and in Part II “. Other industry experts, like Leslie Engelking, Founder of the non-profit, cannabis health and safety organization, Foundation of Cannabis Unified Standards (FOCUS), has been predicting this for years now.

Ultimately, the burden of revenue losses at licensed medical and adult-user operators in the US coupled with potentially higher insurance premiums, (insurers are questioning the viability of insuring legally licensed operators which will certainly, in at least the short term, raise premiums for a margin strapped industry of small companies already handicapped by IRS 280E and banking restrictions) may be too much for many small company operators to withstand. Much like you can’t legally operate uninsured motor vehicles, the industry may face a shortage of insurers willing to underwrite policies for licensed operators.

Ian Stewart

Ian Stewart

Ian is a partner in the Los Angeles office of Wilson Elser. He is co-founder and chair of the Wilson Elser Cannabis Law practice and uses his 20 years of legal experience to help clients navigate the legalities around cannabis and hemp. Ian works with licensed cannabis operators to comply with their obligations under the law and to develop risk management best practices. He also regularly consults with insurance companies to assist with cannabis-related underwriting practices and the development of new policy forms.

He is currently Chair of the National Cannabis Industry Association’s Finance and Insurance Committee, as well as Vice-Chair of the California Cannabis Industry Association’s Insurance Committee. Ian received his B.A. from Washington University in St. Louis, and his JD from St. Louis University. He has been with Wilson Elser for the past 18 years.

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