The Economics of the 2019 Vape Bust: Where the Vape Industry is Headed

It has been on my mind lately the whole Vape Bust of October 2019 and what has happened to the vape industry as a whole since then. It has been a wild ride and the %75 drop in sales has left many vape sellers heading for the hills. But I have a theory that this is about to turn around and those who have hung on to the dream of being a big-league player in the vape market are about to get their chance. I’ll explain the vape bust and my prediction for the future with economic principles and my favorite 4 graphs which can be used to explain almost any phenomenon in the economy.

When I attended Roger Williams University, I had a minor in economics. I always found this field of study to be fascinating with respect to the ways that it explains how markets work. You can apply economic principles to many situations in life it will help you to make better choices, avoid financial traps and sometimes it can even help you predict the future; especially when it comes to the markets for goods and services. The following analysis uses these basic economic principles to attempt to explain the vape bust phenomenon and how this will present new opportunity in the future.

Start out in September-October of 2019. Vape sales are still growing. Nicotine vaping is helping people to quit smoking. Cannabis vaping is on the rise and people are putting money into creating cannabis vapes of all different varieties. The markets are loaded with vape sellers of various sorts and they are making a lot of sales and investing money into their businesses. Everything seems well until all of the sudden news breaks that people are dying from vaping. All of the sudden the vape markets seize up. Sales fall, sellers are stuck with a bunch of vape supplies and no buyers for them. This is the first point that I will use to show that this news caused a total shift in the demand for vapes, down and to the left. The starting position where supply and demand curves meet is called the equilibrium. The new point where supply and demand meet after the shift shows the new equilibrium

 

Over the next few weeks and months, the issue begins to be sorted out. Some of the health issues reported to be related to vaping were not from vaping at all. The source of the vape deaths was not because of everyday vaping of products sold at legitimate stores but instead related to Cannabis vapes that were made with poor quality or bootleg raw materials from China. Many of these bootleg brands are confiscated by authorities. People begin to steer clear of unreliable, street brand basement made cannabis vapes and start to seek more reputable brands. (see my post about choosing quality brand vape juices.) What’s left now in the vape market starts to sell off, albeit very slowly. Investors and business men and women begin to look for other places to invest their money because the returns are not what they were before this jolt to the industry and the future of it is uncertain. . Slowly but surely vape sellers are able to offload the excess supply of vape products. What is left is sold and not very many companies are buying new products to restock their shelves. Regulations begin to set in and many low-end vape juices and batteries are removed from shelves as unsellable. Cannabis vape makers are doing the same, selling off whatever they have in stock and not making more. They are looking to other ways to use the CBD and THC product that they have such as eddibles or concentrates used for other purposes. The are not investing money into creating vapes which they may never be able to sell. This causes the supply of vapes to begin to slowly almost unnoticeably dry up.  This is the second point that I will illustrate with a graph showing the shift in the supply of vapes. At this point the supply curve shifts up to the left, once again creating a new point of equalibrium.

As previously mentioned, vape sellers have shut down or are planning to shut down and divert money to other investments. The market now begins a turn around. News is out about the true source of the vape deaths and associated health risks. Consumers have figured out how to find good vape brands and only the good are left standing. They begin to forget about the panic that had once plagued the market and begin to buy vapes more often and return to regular vaping. The demand for vapes now stabilizes and begins to grow once again. This is the third point to illustrate with the demand curve now shifting up and to the right. Notice the new equilibrium.

This is the major point that I want to highlight because I believe that it is where we are at now. In economics, factors that affect supply or demand curves are typically only in the short run, less than 12 months. In the long run, meaning the end of the short run or over 1 year whichever comes first, other market factors typically cause a return to the original equilibrium. My theory is that the bootlegs are dried up and sold off and the vape sellers that are leaving are now out of the game or just about to exit. But again, as previously mentioned, the demand for vapes has not gone away. In fact it is on the rise once again.

This final point and place is one that represents a point in the near future that has not actually occurred yet. This is my prediction for the next 6 to 12 months in the vape industry. The interim period before we reach this point is the prize point for anyone in this market who has held on clinging to the dream that their business could flourish under the normal circumstances. Those who have remained in the industry are about to get a huge increase in volume and a huge opportunity for growth. The shift in demand in the previous phase will create a potential for sellers to make increased profits and experience growth in their businesses. This will last for a short period of time and will probably help form several new large vape companies. Sellers and investors will be attracted by this potential for growth and profitability and will begin to once again enter the market, so it will not last forever. But this will be a handsome reward to those who kept their faith in this industry’s potential.

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