New York. When Matt and Jen Osmun opened their vape shop in Bethel, Connecticut, last December, they didn’t expect to get a boost from the local medical marijuana outlet.

“Sales are going really well, and getting better every month,” said Jen Osmun, who started the business with her husband, a former plumber, after he was injured in an accident. Most customers at Grassy Plain Vape & Smoke buy electronic cigarettes to help them quit smoking tobacco, but a growing number are referred by medical marijuana commissaries in the neighborhood — the nearest is about five miles away.

The Osmuns’ experience is becoming more common as the number of US vape shops soars and shop owners seek to capitalize not only on the vaping trend, but on the more widespread, and legal, use of medical marijuana.

Since 2008, the number of US vape shops has grown to about 8,500, and the sale of electronic cigarettes and supplies climbed to $3.5 billion, according to Wells Fargo Securities analyst Bonnie Herzog. She expects US use of e-cigarettes and vaporizers to overtake combustible cigarettes in 10 years.

Marijuana represents an additional lucrative market. IBISWorld, a market research firm, projects sales of cannabis for medical use to increase to $13.4 billion in 2020 from $3.6 billion in 2015, largely due to demand from an aging population with conditions such as arthritis, Alzheimer’s disease and glaucoma.

GreenWave Advisors, an industry research firm, estimates marijuana sales could reach $35 billion in 2020 if all 50 states legalize marijuana for both medical and recreational uses.

Medical marijuana use is permitted in 23 states and the District of Columbia for a number of conditions, including cancer, multiple sclerosis, severe pain and HIV/AIDS, according to the Marijuana Policy Project. Another 15 states allow patients — often with severe seizure disorders — to use a few strains of cannabis for treatment. Recreational use is legal in Colorado, Washington, Oregon and Alaska.

At many vape shops, the new customers are typically older nonsmokers suffering from serious illness, according to vape shop owners, customers and industry experts.

Patients and medical marijuana groups say they prefer the vaping device for marijuana rather than smoking because they believe there are lower risks. Some states, including New York and Minnesota, prohibit patients from smoking the cannabis. In a vape device, the cannabis leaves or concentrate are heated to a temperature that’s lower than required for combustion.

Vaping devices, which can be as small as a ball point pen, also provide medical marijuana users with more privacy, since the vapor released by the heating device is nearly odorless.

“Vaporized cannabis is a really significant trend in both medical and adult use,” said Christie Lunsford, a Colorado-based consultant who focuses on issues involving cannabis. “It’s consistent, it’s almost instantaneous, and it’s appropriate for a wide variety of consumers.”

Not a smoking crowd 

Tulsa, Oklahoma-based Palm Beach Vapors has opened 14 shops and is in the process of starting another eight, said Chip Paul, CEO and co-owner. He told Reuters that 90 percent of the franchisees eventually hope to capitalize on marijuana-related sales.

Individual stores pay a $25,000 franchise fee and $50,000 for initial stocking, while Palm Beach Vapors helps train workers and set up the store. Franchisees are on average grossing about $20,000 a month, Paul said.

“We think the cannabis market will mimic and mirror the tobacco market,” he said. “We think they will see this [vapor] as a safer alternative.”

Patients need a doctor’s approval to get the marijuana, which is typically available from state approved dispensaries, private growers, and — in some instances — their own plants if they can’t afford the cannabis, which is not covered by most insurance plans.

At the same time, vaping devices have gone mainstream as the industry pushes them as an alternative to tobacco. Marijuana dispensaries in some states also sell the electronic devices.

But vape shops, with their larger selection of devices, have seen an uptick in sales especially from consumers who don’t want to shop at tobacco stores or head shops, which cater more to recreational use.

“We try to steer our patients to someone who will explain to them the different models and find them the one that is right for them,” said JoAnne Leppanen, executive director of the Rhode Island Patient Advocacy Coalition. “You don’t necessarily want to go into a place geared for people who want a tie-dyed T-shirt.”

The process can be daunting for someone who is seriously ill and struggles to even hold a device because of tremors, arthritis or other medical conditions.

Leppanen said medical marijuana patients “do not want to be associated with recreational use.” They also want their privacy. Some patients don’t even “want their cars to be seen in a dispensary parking lot,” she said.

Early investment

Most investments in the future of legal marijuana have focused on growing, branding and technology firms, especially those already producing medical marijuana. A subsidiary of Scotts Miracle-Gro Co, for example, purchased General Hydroponics Inc, which is popular with indoor marijuana growers.

A small number of private equity and hedge funds have invested in companies that produce and market the cannabis. Billionaire Peter Thiel’s Founders Fund, for example, has invested in Privateer Holdings, which has raised $82 million. Privateer’s portfolio includes companies like Tilray — a medical cannabis company in Canada — which has applied for a license in New York.

Privateer has also invested in Leafly, a tech company that helps consumers find cannabis information, doctors and stores.

By contrast, vape shops are still primarily mom-and-pop operations. VaporFi, one of the largest franchises, has grown in two years to 52 stores.

Kevin Cintorino opened Elevated to sell vaping equipment and snacks in Providence, Rhode Island, where medical marijuana users can gather to vape. He came up with the business plan during a college class.

“Why not open a place where we could get the entire patient community together?” he said.

John Avey and his father, Dillard, opened in May a Palm Beach Vapors franchise in rural Council Bluffs, Iowa, to supplement income from their seasonal cement business. Sales have been so good that they’re already planning more stores.

“It’s like the cherry on top,” said John Avey, 25, about the equipment sales for cannabis.

Reuters

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Crossroads Trading Company in San Francisco, California, is among companies focused on selling used goods, catering a growing popularity of the sharing or “NOwners” culture among today’s Millenials. (Reuters Photo/Robert Galbraith)

New York. Allison Armour loves fashion, but doesn’t need to keep it in her closet.

The 24-year-old frequents privately-held chain Crossroads Trading Co, where she buys brand-name goods secondhand at a discount, then sells the items back when she wants to refresh her look.

Armour, a marketing manager for a nonprofit in Oakland, California, has picked up skirts and shirts, Oxford shoes for $30, a J.Crew trench coat for $40 and a Dooney & Bourke satchel for $150, less than half its retail price. “When I get tired of certain things, I put them aside and sell them back,” she said.

For Millennials — the roughly 77 million Americans born between about 1980 and 2000 — the allure of “no ownership” is moving beyond housing and cars.

A new industry based on sharing or renting clothing, electronics and small appliances is springing up from nothing about five years ago, posing a disruptive force to traditional retailers.

Battered by student loan debt and the Great Recession, Millennials place less emphasis on owning and more on sharing, bartering and trading to access coveted goods. These behaviors have propelled businesses such as car rental service Zipcar, taxi service Uber and home rental site Airbnb.

What Millennials do buy, and keep, is their smartphones. About 85 percent of people aged 18 to 34 own them, according to Nielsen research, and the devices are the doorway to the sharing economy.

Now these “NOwners,” as Jamie Gutfreund, chief marketing officer for Deep Focus, calls them, are propelling a new wave of privately-held companies such as children’s resale marketplaces Kidizen and Yerdle, which allow customers to swap or buy smaller-ticket items like used clothes and household goods. Deep Focus does market research on youth trends.

While their parents may have frequented thrift stores to save money, Millennials who have the income to buy new goods also see sharing and re-using as a way to promote environmental benefits such as reducing landfill waste.

“Instead of paying for something and getting rid of it with no value when you are done — swap and resale gives Millennials the ability to extend the value,” Gutfreund said. “It’s efficient and it’s green.”

Indeed, 59 percent of Crossroads shoppers said “being an environmentally friendly way to shop” was one of their favorite things about the store.

“A lot of people can’t afford the timeless brands new but they still appreciate the quality,” said Erin Wallace, director of marketing for Crossroads Trading and its sister store Fillmore & 5th, which has opened six boutiques since 2012.

Alexis Rutledge shops for clothes at Crossroads Trading Company. (Reuters Photo/Robert Galbraith)

Many of these new businesses are getting funding from traditional sources like individuals and private equity firms including Bain Capital Ventures but also from startup platforms such as Onevest.

“Just about every major industry is likely to experience disruption [because of the sharing econom],” said Joe Atkinson of accounting and consulting firm PwC, whose April report that found that Millennials are among the most enthusiastic about sharing and account for almost 40 percent of those who have provided something.

Flow of stuff

Driven by demand and technology, membership at Kidizen is growing 40 percent to 50 percent a month. The company was founded by two mothers with retail and marketing experience who wanted to share the endless flow of “kidstuff” that arrived with parenthood.

Members post photos, blog about their families, even send notes and lollipops in shipments to the next family.

“It is a community where people have gotten to know each other,” said Dori Graff, 39, a co-founder. “That makes it sticky. People keep coming back.”

Yerdle estimates that American closets and garages contain $100 billion in unused clothes, tools and other items, which it wants consumers to acquire from the site rather than buying new.

“They shopping with things they don’t need any more,” said co-founder Andrew Ruben, 42, who previously led sustainability efforts at US discount retailer Walmart. Yerdle now has more than 300,000 members, and is growing 30 percent month over month. He said the ultimate goal is to get people “to buy 25 percent fewer new items.”

It has no inventory costs because members post a photo of an item, and keep it until someone else wants it. Ruben said about 40 percent of the items go in their first day.

Procedures for selling used clothing are seen on a sign at Crossroads Trading Company. (Reuters Photo/Robert Galbraith)

The company has received $10 million in funding, including about $6 million from The Westly Group, which includes former eBay executives. The Menlo Park, Calif., firm focuses on making money while solving social issues by investing in everything from Good Eggs, which delivers fresh food from local producers, to Greengate Power, a wind farm in Canada.

“It’s about how do you take all these assets and get them used over and over by other people,” said Gary Dillabough, a Westly managing partner, who now sits on Yerdle’s board. And that appeals to Millennials. “They want to use things that are already in the economy.”

Worn wear

Some established retailers have taken note. Patagonia, already popular with Millennials because of its quality and environmental reputation, has offered free repairs since the 1970s. More recently, it launched a program encouraging customers to trade in used clothing in good condition. They are resold at its Portland, Oregon store for about half the original price.

“We found that it encourages new customers to come to our brand,” said Nellie Cohen, 32, environmental marketing manager at Patagonia. “People come to see what is on the Worn Wear rack.”

Highland Capital Partners, which has more than $2 billion under management, has invested in a number of businesses including Rent the Runway and ThredUp, an online fashion resale shop, which focus on Millennials and the shared economy, said Dan Nova, a partner. He likes Rent the Runway’s leadership and business model.

Rent the Runway, founded in 2009, allows users to rent couture for special occasions. Not yet profitable, the company, which says it’s raised $116 million and is worth $600 million, now has almost 5 million members, including celebrities and billionaires, and $1 billion in inventory. It describes its typical client as a well-educated 29-year-old female professional.

“In the age of Facebook, people don’t want to be photographed more than once or twice in the same dress,” Nova said.

Reuters

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New York. On a recent morning, Roger Tarazon and several friends gathered a few blocks from their Queens, New York high school. Some smoked traditional cigarettes, but Tarazon and a few others puffed on electronic vaping devices.

“Sometimes I use it to relax,” the 18-year-old senior said of the device. He also uses it to perform tricks with the vapor, blowing smoke rings or creating funnels of smoke that look like miniature tornadoes.

“I don’t do it to show off,” he said. “I just do them because I’m bored.”

Tarazon’s embrace of such tricks reflects a growing trend among U.S. teenagers, whose use of e-cigarettes tripled in the last year alone. New research provided to Reuters has found that performing tricks is one of the top two reasons young users say they consider the devices cool.

Public health officials have warned for several years of the attraction of flavored nicotine liquid to teens and tweens, and have urged regulators to ban them. Consumers have a wide range of flavor choices, including menthol, single-malt scotch, cappuccino and pomegranate.

But the role of tricks in enticing young people to use e-cigarettes has not previously been explored. Now researchers are asking whether they could help hook a new generation who otherwise would not have used nicotine.

“We expected the flavors were attractive,” said Suchitra Krishnan-Sarin, a psychiatry professor at the Yale School of Medicine. “But smoke tricks were a surprise to us.”

Krishnan-Sarin and her team, with funding from the National Institutes of Health, asked 5,400 Connecticut teens to identify what they found “cool about e-cigarettes?”

The top two answers were: the flavors of the vaping liquids, and the “ability to do tricks.”

Electronic devices produce much more vapor, especially when adjusted to operate at high temperatures, than conventional cigarettes, which helps facilitate the vapor tricks. Teen interest in performing them comes as “cloud competitions,” are increasing in popularity.

The contests, in which adult vapers, as they call themsleves, compete to perform the best tricks and create the biggest and densest vapor clouds, are becoming a regular feature at local vape shops. Some regional competitions offer thousands of dollars in prize money.

Thousands of videos demonstrating expert vaping and how to perform tricks have been posted on YouTube and Instagram. “Even if (teenagers) don’t attend these events they are exposed to a lot of these issues,” Krishnan-Sarin said.

Alarm over teen use

E-cigarette use by US tweens and teens tripled in 2014 to 13.4 percent from 4.5 percent in 2013, according to data released in April by the Centers for Disease Control and Prevention. Overall tobacco use during that period dropped to 9.2 percent from 12.7 percent. 

The data prompted new alarm among public health advocates, who urged the Obama administration to quickly finalize proposed rules that will allow the Food and Drug Administration to regulate e-cigarettes for the first time.

Using e-cigarettes is considered less risky than smoking traditional tobacco cigarettes, which increase the likelihood of lung cancer and other disease. But several studies have found that heating the liquids used in electronic devices to very high temperatures could release formaldehyde, a carcinogen.

“If you don’t smoke, if you don’t use tobacco products, there is no reason to experiment with electronic cigarettes,” said Maciej L. Goniewicz, a professor at the Roswell Park Cancer Institute, who has done some of the formaldehyde research.

Tarazon and other teens said their favorite tricks include something called the “dragon,” in which vapor is exhaled from both nostrils and sides of their mouth. They learn the tricks from each other or by watching online videos with demonstrations set to popular music.

Many are of cloud competitions, which started on the West Coast a few years ago but are now popular nationwide. The majority are low-key events at vape shops where winners typically are awarded devices or gift cards.

But there are also beginning to be far more serious competitions. The Vape Capitol Cloud Championship, for example, will offer $10,000 for the Biggest Cloud and the best Vape Tricks.

The competitors – mostly men in their 20s and 30s – train to increase their lung capacity by blowing up balloons and by using diving equipment and plastic breathing devices typically used after surgery. The events bar minors from competing, and often from attending, too, though there is no law prohibiting them from being part of the audience.

“We’re aware that there is a niche group that enjoys participating in vaper competitions,” said Phil Daman, president of the Smoke-Free Alternative Trade Association. “Any use of these products should be strictly limited to adults.”

Chris Esker, at Fogwind Vapor in Effingham, Illinois said he’d rather not have minors attend the store’s events, but he can’t prevent parents from bringing their kids.

Esker converted his T-shirt store into a vape shop about a year ago. Sales have been so strong that he hopes to open this year two more stores.

“There are kids doing back flips on dirt bikes,” said Esker, who began smoking at age 12 but now vapes. “There are way worse things they can be doing.”

Reuters

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