56 / ENTREPRENEUR.COM / March 2020O
ne morning last
August, Jonathan
Doneson woke up
with a cough that shot
straight through his
rib cage. “It was like
I’d taken a really big
bong hit,” says the 53-year-old,
who runs a women’s apparel
company with his wife.
But Doneson didn’t have a
bong. He had a marijuana vape
pen. Since recreational weed is
still illegal in New York, where
Doneson lives, he bought his
cartridges through a friend and
other means. Some came in a
professional-looking package
labeled Kingpen, a respected
cannabis brand; some didn’t.
Doneson didn’t really care.
What happened next will
sound familiar to anyone who
followed the news in 2019.
Doneson’s health deteriorated,
and doctors struggled to crack
the case—until he mentioned
that he used a vape pen. “People
have died from this,” one of the
doctors told him. Indeed, stories
of vape-related deaths caused
nationwide panic last year; more
than 2,650 people had fallen
ill and 60 people died by mid-
January this year, leading to a
deep examination of vaping.
But in the cannabis industry,
this crisis underscored an even
deeper problem. Despite canna-
bis being legal and highly regu-
lated in many states, legitimate
entrepreneurs are struggling to
compete with marijuana’s black
market. And they will suffer theconsequences of the black mar-
ket’s failings.
Take those vape cartridges
Doneson was using. They may
have been labeled with brand
names like Kingpen, but they
weren’t all legit. Some were con-
vincing counterfeits—just like
the dangerous knockoffs bear-
ing other reputable brand names
such as Brass Knuckles, Heavy
Hitters, and Dank Vapes.
The Centers for Disease
Control and Prevention (CDC)
has explicitly warned people
to avoid using THC products
purchased from friends, fam-
ily members, or unlicensed
dealers— and vaping entirely.
Many consumers backed off
the products, even when sold
at a regulated retailer. That put
a chill on revenues. Vaporizers
make up about 24 percent of
legal cannabis sales, according
to BDS Analytics, and that num-
ber had been expected to climb
for at least the next five years.
But in the span of a few weeks
after people started dying,
sales dropped by 11 percent in
California, 16 percent in Nevada,
and 25 percent in Oregon.
“Vapegate was catastrophic
for us,” says Daniel Corral, VP of
sales for Loudpack, the company
that produces Kingpen vapes.
Revenues fell by 70 percent.
“Kingpen went from being one
of the most prominent brands
in the cannabis space to basi-
cally getting blacklisted across
Southern California,” he says.
Consumers weren’t the onlyones backing away. When legal
store owners saw Kingpen vapes
being sold by illegal pot deal-
ers, they mistakenly thought
Kingpen was in on it. “Store
owners thought we were play-
ing both sides of the market, and
that we were ultimately going
to be the cause of their demise,”
says Corral. “It had serious
repercussions to our reputation.”
And this, in turn, has galva-
nized cannabis entrepreneurs to
tackle the biggest problem fac-
ing the industry: The illegal can-
nabis industry is still thriving,
stealing customers, revenue, and
reputation away from the legal
cannabis industry. It’s happen-
ing in states where cannabis is
outlawed, of course, but also in
states where it’s perfectly legal.
“The bootleggers were cheapen-
ing our brand,” says Corral. “We
knew we had to fight back.”
But how?THE CANNABIS industry certainly
isn’t the first to be targeted by
counterfeiters. The global mar-
ket for fake goods is estimated
to be a half trillion dollars, and
bootlegged footwear and cloth-
ing are believed to make up
about 38 percent of that.
Companies large and small
are knocked off—and for the
ones that can afford to fight
back, that usually involves going
after the offending manufactur-
ers and sellers with trademark
infringement lawsuits, or add-
ing hard-to-replicate details.
The trendy parka brand CanadaGoose, for instance, has done
both. It sued Chinese websites
for selling counterfeits while
installing a new product tag
with a polar bear hologram on it.
But for the cannabis industry,
many of the companies being
ripped off are just struggling to
find their footing. And in some
areas, their illegal competitors
actually carry more clout with
consumers. After all, the illegal
market has been around a lot
longer than the legal market,
and some of the early legaliza-
tion efforts actually boostedCan the Black Market
Be Stopped?
The biggest threat to marijuana startups isn’t coming from the legal competition. It’s
coming from the illegal market, which thrives even in states that have legalized weed.
To extinguish the threat, licensed dealers might have to work together. by CLINT CARTERThe Canna-business
PHOTOGRAPHBY^ JUSTIN^ MCIVOR