Industry Snapshot: Vaporizer Companies

, Industry Snapshot: Vaporizer Companies

Data, trends and challenges

by John Schroyer

It seems as if vaporizers – in particular, vaporizer pens – are everywhere.

That’s thanks mainly to the biggest manufacturing economy in the world – China.

“In 2014, I could have named all (vaporizer companies) on both hands, very easily. Now, in 2017, what you have in China is an economy that’s based on copying things as quickly as (possible),” said Peter Hackett, vice president of Transpring, a Chinese vaporizer manufacturer that has a distribution wing in the United States.

“What’s arisen in the last few years, as the cannabis industry has grown and vaporizers have become popular, are smaller companies in China that can produce e-cigarettes and are willing to take a risk and enter (the cannabis) industry,” Hackett added.

The result has been a glut of inexpensive vape pens in the U.S. marijuana market, as retailers, growers and extractors have begun purchasing cheap, wholesale vape pens from Chinese manufacturers, emblazoning those pens with their own brand name and selling them.

But that hasn’t done away with higher-end vaporizers that focus much more on quality, whereas pens often cater to consumers looking for the cheapest possible vape option.

To the contrary, the vaporizer market seems to be continually growing, likely due to a number of factors, including:

  • A continuing rise in medical cannabis use (because vaping has much more support from physicians than smoking).
  • The portability and discretion of personal vaporizers.
  • Some U.S. state laws that prohibit the sale of flower but encourage vaping.

Market Dynamics

The vaporizer business is crowded, with insiders estimating there are hundreds of vaporizer pen brands across the globe thanks to Chinese factories. There are at least a few dozen independent vaporizer manufacturers globally that typically carry only one flagship vaporizer product that is perhaps updated periodically with new functions or features.

“Many are brands that are ‘re-skinning’ e-cigarettes and then putting it in a package that’s trying to lean towards consumers. But there’s no real manufacturing on their part,” said Steve Berg, CEO of San Francisco-based Firefly Vapor.

“By that measure, there are probably thousands of companies out there, just in the U.S., that are doing it. In terms of companies that are designing and building their own devices, that’s a much smaller subset, probably measured in the dozens.”

Some, like Transpring, specialize in vaporizer pens, cartridges and batteries, while many, such as Colorado-based 7th Floor Vaporizers, focus on tabletop vaporizers or specialty devices that often work with both flower and concentrates.

“When we started, there were probably five to 10 of us (in the vaporizer business),” said Steve Kelnhofer, who founded 7th Floor in 2005. “After a while, as pot became more legal, and these vape pens started coming out, the whole ballgame started changing.”

Many higher-end vaporizers tend to cost considerably more for customers, but the payoff is typically a better vaping experience and a longer-lasting product that consumers can use for years. Moreover, vaping is simply healthier than smoking.

“It’s an investment in your lungs, at the end of the day,” said Lisa Harun, the co-founder of Canada-based Vapium.

The price range for a quality vaporizer can run from around $100 up to $600 for top-of-the-line desktop vaporizers such as the German-made Volcano, which many consumers still consider to be the industry standard. Vape pens, by contrast, typically retail for much less: Colorado’s OpenVAPE pens start at about $20, for instance.

But there remain niches to be explored. Vapium, which produces a splashproof, handheld vaporizer dubbed the Summit Plus, retails for $149, and can even be used in the shower, Harun said.

“When we were going after the waterproofing part, I was like, let’s be real. People vape in the bathroom. They’re hiding from their kids, they’re hiding from their wives, and you hear about people dropping their phones in the toilet,” Harun said. “What if you could just vape in the shower? That was sort of how that was born.”

Firefly, which released its first vaporizer in 2013 and is now on its second iteration, even has an app that accompanies its portable vaporizer and allows the user to change the temperature settings depending on whether flower or concentrates are being vaped.

“The app, via Bluetooth, connects with the device. It will give you metrics on settings, you can control the temperature setting and refine some characteristics about how the temperature is delivered,” said Firefly’s Berg.

The vaporizer business is continuing to grow along with the rest of the marijuana trade. Vapium was founded in 2013, and profits are already in the low millions, Harun said, and have grown at about 30% since Vapium released its first vaporizer line in 2015.

At Transpring, Hackett said current annual revenue is about $50 million, up from about $1 million when the Chinese manufacturer expanded into the cannabis business in 2012. He expects to break the $100 million mark in a few more years.

Puffco, a Brooklyn, New York-based vaporizer company founded in 2013, is also pulling in millions in revenue, said founder Roger Volodarsky, and that’s despite a major manufacturing snafu in 2016 that put production on hold for months.

Firefly’s Berg declined to share company revenue but noted that its device retails for about $330 and the business has sold “tens of thousands” since the 2013 launch.

7th Floor is the only vaporizer producer Marijuana Business Magazine spoke with for this article that didn’t report year-over-year growth in sales. Kelnhofer attributed that to his lack of marketing prowess but said he’s “very optimistic” about the future of both his business and the industry overall. His company’s top year was about $3 million, and this year it’s on track to do about $1 million in sales, Kelnhofer said.

Business Hurdles

Customer Education

One of the biggest obstacles higher-end vaporizer companies face is simple: convincing consumers that their products are worth the extra cash. That’s because the price difference can be significant.

Firefly’s Berg, for instance, acknowledged that there’s definitely a customer demographic that skips right over its vaporizers because they retail for $330.

“There’s sort of a user education curve. The best way to overcome that is just getting one in somebody’s hands and letting them play with it, as opposed to a CO2 oil vape pen without any buttons. This one has more nuances and more features, and they’re all valuable, but they need to be understood. So customer education is one of the bigger hurdles we face,” Berg said.

Even companies with much less pricey vaporizers, such as Vapium, readily acknowledge that consumer education is a hurdle they continually face, especially with the boom in popularity of inexpensive vape pens.

Import Problems and Chinese Manufacturing Issues

Even if vaporizer companies in North America and Europe don’t have all their devices manufactured in China, they often purchase parts from Chinese companies. Either way, U.S. customs can be a substantial hurdle, as can the reliability of Chinese manufacturing partners.

Puffco’s business stalled in 2016 because of a product defect, courtesy of a Chinese manufacturer that messed up the vaporizer design (which was chronicled in the May-June issue of Marijuana Business Magazine).

Puffco’s Volodarsky said his China issues were an important learning experience but that his company is better off for it.

“Before, we would just design it and hand it off and hope for the best, and that didn’t work out,” he said. “Now, we design it, we source it, we oversee assembly, we fully own the process. It’s a very expensive way to build, but … it’s the only way to build it and make sure you get what you want.”

7th Floor lost hundreds of thousands of dollars a few years ago when U.S. customs agents seized five shipping containers of Chinese parts bound for the company’s Colorado manufacturing plant, because the government classified the parts to be “drug paraphernalia.”

“That was a tough pill to swallow,” 7th Floor’s Kelhnhofer said. “There were parts and pieces to make a good 2,000-3,000 vaporizers. It was everything I had at the time.”

Growing Competition and Brand Identification

Another major hurdle for independent vaporizer producers has been how to distinguish themselves from the pack.

“A lot of vaporizer companies, if you look across the market, are starting to look the same, because they’re using the same hardware, they’re placing their branding in the same fashion on the same products,” Transpring’s Hackett said.

“Smart, forward-thinking companies will say, ‘We like the base platform, but we need to be able to design the outer design of it, or make some portion of it uniquely ours, so we can identify ourselves against the greater market,’” he said. “When that comes to vape pens, usually that will take shape in the mouthpiece. That’s one of the easiest ways to brand a vape pen and make it uniquely your own.”

Other ways vaporizer companies distinguish themselves is through innovative features, custom art offerings and quality marketing.

“Our next biggest challenge is likely to be marketing. No matter how innovative you are, because so many companies are out there marketing, it could be hard for a new user entering the space to see what is obviously best,” Volodarsky said. “Making an amazing product was step one for us. Now we have to tell the world why it’s so amazing.”

TRENDS TO WATCH

Rise of Portable Vaporizers

Vaporizer companies generally agree that portable vaporizer devices will likely continue to grow in popularity across the global marijuana market.

“Ease, convenience and friendly form factors,” Firefly’s Berg said when asked about trends in the vaporizer business. “That’s something we’re very, very conscious of.”

Transpring’s Hackett broke down the popularity of vape pens to its most fundamental level.

“What it provided was the brown bag effect,” Hackett said about the appeal of vape pens specifically. “If you take an open bottle of alcohol out onto the streets, you’re legally and socially obnoxious. But if you slip a brown bag around that alcohol container, all of a sudden, cops can go right by you without having to stop. They know exactly what you’re doing, but they have an excuse now to just pass you by.”

Concentrates Over Flower

Vapium’s Harun said one reason concentrates will continue to boom is the steady increase in medical cannabis use, for which she argued concentrates are much more appealing than raw marijuana flower.

“There will always be a healthy market for flower, but concentrates are going to continue to grow, and I think that (the industry is) going to become more savvy in terms of the healthier ways of extracting,” Harun said.

Berg, who spent three years as the chief financial officer of OpenVAPE before signing on with Firefly, said that non-vaporizer companies such as cannabis retailers and growers will also likely continue getting into the vape pen market. That’s in part because Chinese manufacturers are still making it relatively easy, and also because OpenVAPE broke new ground by making quality vape pens cheap and accessible for consumers, both Berg and Hackett said.

Already, most of the quickly available vape pens utilize cannabis oil instead of flower, and they work with the type of inexpensive replaceable cartridge produced by Transpring and lots of other Chinese factories.

“If you’re a retailer in Colorado, and you’re doing good business just retailing those, but you’re left wondering, ‘Could we do something similar and capture more margin?’ The easiest thing to do is just start either producing your own oil, or buying it on the wholesale market, and getting cheap knockoff pens,” Berg said. “On the surface, it looks quite easy. … Consequently, the market is increasingly flooded with ‘me-too’ products.”

Technological Innovation

Another notable trend in the vaporizer business is going to be new tech features that companies will develop as yet another way to appeal to consumers.

Volodarsky compared the situation to Apple and Samsung’s ongoing rivalry with the iPhone and Android smartphones, and he predicted the same sort of competition will play out in the cannabis vaporizer space.

Harun said that’s one of the reasons Vapium developed its Summit Plus to be as durable as possible, and it’s also one of the reasons the company is on its third version of its vaporizer.

“Innovation will be king and continues to be something that is not just desirable but is becoming part of peoples’ expectations,” Harun said. “We can use that to help drive the next iteration and the new devices.”

Part of that, added Hackett, will be technology that provides an even more precise dose of cannabis oil or flower than what’s currently available on the market, especially as the medical marijuana industry continues to expand globally.

“One of the driving trends is going to be trying to create technology that can provide accurate single dosing,” Hackett predicted. “Right now, there are a couple pens on the market that claim to do that. … But those pens, if you look at the inner workings of them, it’s still a little dicey.”

Market Segmentation

Another trend Berg said is already occurring is vaporizer companies having to choose which customer demographics they want to target, based on different product benefits, pricing and so on.

“In the early days, it was just enough to be selling cannabis. … It came in a pretty nondescript container. It was like faceless cannabis. Just the fact that you had it was enough to justify a sale. That was then, and this is now, and we’re in a different world now,” Berg said.

“You have market segmentation that is increasingly pronounced, and I think it’s one of the things that will govern successful brand development in the years ahead,” he added. “Are you catering to baby boomers, millennials or Gen Xers? Are you more medically oriented?”

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