Greetings, As discussed previously, our optimism for the cannabis industry is high (pun intended). Furthermore, we take pride in our role – deploying capital to build a sustaining, responsible, and healthy industry, thus ending the long-running, unregulated illicit market. But, as boxing legend Mike Tyson reminds us: “everyone has a plan 'till they get punched in the mouth.” And this quarter landed a haymaker. A few months ago, the media began reporting on individuals hospitalized with a lung illness associated with “vaping”. “Vaping” involves a pen-shaped device that heats tobacco or cannabis oil into a vapor for inhalation. It is advertised as a healthier alternative to traditional smoking of dried material. All told, the CDC has reported ~1,300 such illness cases (mostly with cannabis vape) across 49 states, including 26 deaths. Given the severity and suddenness of the outbreak, it is not surprising that the media pounced, citing vaping as a “public health crisis.” The government followed, with the FDA warning consumers “not to use vaping produces containing THC” and several states (including recreational legal markets OR and MA) outright banning vape sales. Even President Trump piled on saying “People are dying of vaping. A lot of people think vaping is wonderful, it’s great. It’s really not wonderful.” Given we are an investor in a vape company and wider industry enthusiast, we were extremely alarmed. As we investigated, however, we realized it was necessary to separate fact from fiction to understand this crisis. A few takeaways: First, cannabis vape and tobacco e-cigarettes are different products and industries. People (including the FDA) are concerned about the rising use of e-cigarettes, especially flavored ones, by teenagers (and rightfully so, in our view). However, e-cigarettes do not seem to be involved in the lung illnesses. Likewise, bans on flavored e-cigarettes (which is popular amongst states) generally does not affect cannabis vape. Second, the FDA and CDC have not identified a single cause of the lung illnesses. While the illnesses are correlated with cannabis vape usage, this correlation may be masking things unrelated to cannabis oil. For example, it has been suggested that thickening agents (like Vitamin E) or toxic chemicals (like Cadmium or pesticides) are the true causes. Third and perhaps most important to us, there is a correlation between the illnesses (and the suggested causes above) and illicit market products. The CDC has stated: “the latest national and state findings suggest products containing THC, particularly those obtained off the street or from other informal sources (e.g. friends, family members, illicit dealers), are linked to most of the cases and play a major role in the outbreak.” Separately, NBC News found that 13 of 15 samples of illicit market cannabis vape contained Vitamin E, while 100% of samples tested positive for pesticides. These results were not surprising to us, as the regulated California oil companies we know do not use thickening agents and the state’s rigid testing protocols cover pesticides and toxic metals. So what’s going on? Our hypothesis is the popularity of vaping has led to a wide public perception of safety, regardless of source. Additionally, due to lax enforcement, low entry barriers (counterfeit oil cartridges and packaging can be obtained cheaply from China, for example), and low prices, there’s a thriving illicit market for vape products. Given this, we think absolute bans by the government and general industry fear mongering are a mistake, akin to an attitude of “Fire. Aim. Ready.” We need a two-pronged approach instead – (i) aggressive enforcement against illicit market producers and (ii) more friendly policies to create a healthy regulated market – where appropriate quality and safety measures will take place. Though counterintuitive, we believe more support is needed for the regulated cannabis market, not less. Thanks for tuning in, and we look forward to providing you with more industry and business updates in the coming months. Until next time!