Rising High: Exclusive talk with vape tech developer Ispire Technology

In this edition of “Rising High,” The Fly conducted an exclusive interview with Michael Wang, Co-Chief Executive Officer of Ispire Technology (ISPR), a company focused on vaping technology and precision dosing. Here are some highlights:

VAPING TECHNOLOGY: Ispire is engaged in the research and development, design, commercialization, sales, marketing, and distribution of branded e-cigarettes and cannabis vaping products. The company’s tobacco products are marketed under the Aspire brand and sold worldwide, while its cannabis products are marketed under the Ispire brand primarily on an original design manufacturer basis to other cannabis vapor companies. “We have a history of innovation in the vapor space and have accumulated a portfolio among the industry’s best as it pertains to patents and intellectual property,” Wang said. “We’re absolutely going to continue to prioritize innovation and leading the pack, that’s our number one competitive advantage, and we will always try to keep it that way. The second component is figuring out ways to protect consumers. Everything we have done, are doing and will do is very much centered around how to protect consumers from combustible materials in addition to providing certain product authentication technologies.”

Ispire seeks to ensure that consumers are protected from any harmful hardware or vaping products available in the market, he said. “It is imperative that our consumers maintain the ability to be able to buy authentic oil used in vaping devices from reputable brands,” the co-CEO said. “On that front, Ispire has introduced many technologies to help our branded customers. In fact, the latest technology we are working on is an age-gating technology to aid point-of-use access control. This is going to be an incredibly transformative technology for both the e-cigarette and cannabis vaping industries.”

The company is also seeking to leverage its technology to generate not only a positive consumer experience, but also strong returns to investors, he said. “On that front, we will continue to push forward to leverage our technology to deliver the best possible financial results,” Wang said.

When asked about the increasing competition in the cannabis space, he noted Ispire’s technology is completely differentiated from other players within the industry. “Our age-gating technology is simply so far ahead of the pack in that regard,” the co-CEO said. “The second differentiator is something often undervalued or overlooked by all of our competitors, and that is the impact of the cannabis community itself. Most of our competitors are factories from China, and while some make great products at an affordable price, they don’t have the connections, understanding and overall knowledge about the finer points of the industry. Our team of more than 70 people in the U.S. largely came from this industry, and the cannabis industry is one small enough where everyone knows everyone. Between Ispire’s technological advantage and our team’s established presence in the cannabis arena, we have built a sustainable competitive advantage that will lead us into the future.”

Q2 EARNINGS: In February, Ispire reported second quarter earnings with revenue up 30.7% year-over-year to $41.7M. Tobacco vaping products contributed $22.1M and cannabis vaping products contributed $19.5M to revenue during Q2. “Frankly, I am slightly disappointed with our result,” Wang said. “We certainly have the ability to do better, but I don’t want anybody to look at one quarterly result in isolation. It is important to note that this industry does have a seasonal element to it; the December quarter and the March quarter are on the lower side.”

The seasonality can be partially attributed to the Chinese New Year shutdown, which disrupts production by over four weeks, he said. “That’s also why the June quarter, historically speaking, has always been a strong quarter,” the co-CEO said. “After the Chinese New Year shutdown, when everybody is back to work, you see an uptick in demand with most brands rushing to place orders after this quiet period.”

He added he believes Ispire is still on track to meet the company’s target revenue. “When the fiscal year is over, we should see much greater overall revenue growth,” Wang said. “Our September quarter is probably a better reflection of what the year would look like. So, while it was a slower growth quarter, we are still on track to increase our fiscal year revenue in the ballpark of 50% to 60% over the previous fiscal year.”

Along with Q2 earnings, the company projected 2024 revenue for cannabis vaping products to be in the range of $80M to $90M. “I would say there are three key elements,” the co-CEO said. “The first is our historical data based on existing customers and how much more we could provide to them. Number two is related to our new technology. The Ispire ONE product series has become very attractive to larger and larger operators because they realized that they could cut costs while boosting their brand integrity by producing products in an automated, leak-proof fashion. We launched that product officially in November, and we believe it will aid in generating revenue towards this current fiscal year.”

The third element is new customers who want to buy either traditional products or Ispire ONE products, he said. “These are customers who we have not actively engaged with in the past, but that we plan to target going forward,” Wang said. “That will bring in some revenue towards the end of the fiscal year.”

PARTNERSHIPS: In February, Ispire and cannabis brand Hidden Hills announced a partnership to launch a cannabis and hemp vaping experience for consumers named Hidden Hills & Friends. “Hidden Hills and Friends comprises highly reputable brands that are all major players in the space,” the co-CEO said. “We didn’t just enter this partnership because we want to work with such reputable brands, it’s also because we introduced a dual flavored device that gives these brands an opportunity to collaborate amongst themselves. For example, one side of the device can have Hidden Hills Oil and the other chamber can have the ‘friends’ oil. These ‘friends’ include prominent brands like Big Chief, Plug N Play, Packwoods, and LA Traffic. It’s really amazing for us to have a product that can facilitate such strong relationships among these established brands.”

Additionally in December, the company announced that Aspire had entered a five-year exclusive global manufacturing and distribution agreement with lifestyle brand, BRKFST, co-created by Grammy award winner Burna Boy. “That relationship is a perfect marriage in terms of what we both want to accomplish,” Wang said. “The cannabis industry and the e-cig industry are two very small industries where almost everybody knows everybody. Because of the interconnected nature, the quality of your work will be amplified within the space much quicker than in larger industries. BRKFST was introduced to us through a mutual party who has been a customer of Ispire. After meeting with the BRKFST team, we quickly found ourselves aligned on our values, strategy, and overall approach. We are thrilled to be a part of the BRKFST business and we’re glad to have Burna Boy as a key influencer for our business.”

MALAYSIA MANUFACTURING: In February, Ispire announced the opening of its ISO- and GMP-certified 31,000 sq. ft. manufacturing facility in Malaysia. “That facility will have a profound impact on our future success,” the co-CEO said. “Simply put, it is a 100% fully owned operation by Ispire. We’ll capture the whole gross margin from that operation instead of our current setup, where we buy products from contract factories that keep some of the margin.”

He added he is very pleased that production is finally beginning, initially with two production lines to be expanded to six lines. “Over the course of the next six months, we hope to add more automation to the production process so we can expand those six lines into 12 lines,” Wang said. “This automation will support more than half of our total demand. Our long-term goal is to scale up that operation so that we can produce 100% of the cannabis vaping hardware for us to bring across the border to achieve higher gross margin as well. This facility is both strategically and operationally vital to our overarching objectives, and we are finally starting to see it come alive and impact our margins.”

PRODUCT CATEGORIES: According to cannabis research firms, flower still holds the biggest share of sales of any cannabis product category, usually followed by vape. “I strongly believe that both trends will continue,” the co-CEO said. “Vaping as a percentage of cannabis retail sales will continue to grow, and disposables will continue to dominate the vaping sector. As we all know, the cannabis industry is a relatively young industry. Many things involved in the day-to-day of are still very rudimentary, including how the cannabis plant material is consumed, and that is to roll up a joint and smoke it.”

Not only is flower a combustible substance, but cannabis flower smells very strongly, he said. “Vaping, however, solves a big problem just by nature of the ability to manipulate terpenes and cannabinoids to be as tasteless and odorless as possible,” Wang said. “This makes it easy to carry a vape pen and consume a vape device in public, and that’s a key reason for why vaping’s market share in the cannabis industry has grown up to 30%. By all indications, in the next two to three years more than 50% of retail cannabis sales will come through the vaping channel.”

He added vape disposables designed in a compact and easy to carry manner have taken the market by storm, becoming the dominating form factor for vaping devices. “Ispire, in turn, is at the forefront of this trend by offering most of our products in the form of a disposable,” the co-CEO said. “Disposables will continue to be the leading form factor for the vaping space.”

SAFER BANKING: In September, a U.S. Senate committee voted to advance The Secure and Fair Enforcement Regulation Banking Act bill, which seeks to ensure that all businesses, including cannabis businesses, have access to deposit accounts, insurance and other financial services. “This is certainly welcome news for the industry, because without banking services, the industry by and large lives off of cash,” Wang said. “This is not ideal for any industry, as cash can prove to be dangerous in terms of its propensity to attract criminals.”

A lack of banking services puts limits on how fast the industry can grow, he said. “The SAFER Banking Act is a solution everybody in the industry has been looking forward to for a long time,” the co-CEO said. “Do I think it’ll finally pass? I’m not banking on it, as we have come close to a solution many times before, only to fall short for partisan reasons.”

SCHEDULING: In August, the U.S. Department of Health and Human Services made a recommendation to the Drug Enforcement Agency that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act. “If the DEA were to deschedule cannabis to Schedule III, it would serve as a watershed moment for the industry,” Wang said. “The DEA rescheduling will probably happen before SAFER Banking legislation is enacted into law. I hope it will act as a catalyst to accelerate banking reform for the wider cannabis industry.”

Rescheduling will not fix the banking issue, he said, as the Bank Secrecy Act would need to be updated. “It would still be a Schedule III which has strict guidelines under FinCen,” the co-CEO said. “And a lot of capital, not necessarily from banks, but from institutional investors and large corporations, cannot engage fully in the cannabis industry because of the red tape resulting from its federal status. More importantly, because cannabis is regulated state by state, there is no chance for economies of scale, something that is incredibly important in any industry. Without federal legalization, operators can only operate within each state boundary. When legalization or safer banking legislation happens, or both, it will truly accelerate this industry through an influx in capital, expertise, technology, and operational support.”

CHALLENGES: When asked about the largest hurdles facing the cannabis space, Wang pointed to cash flow pressure as a struggle facing players in the industry. “Cannabis players have seen firsthand how tough it has been, especially in states where there is an oversupply and the combined price pressure and cashflow pressure makes the industry really challenging,” he said. “For companies like Ispire, we are not bound by state regulations and state lines. Despite this, we are on the receiving end of the challenges plant touching companies face, so we really feel their pain and in a sense share that pain. These challenges will remain in place for the industry at large until central banking and federal legalization fully take place.”

OPPORTUNITIES: As the cannabis space develops, the co-CEO said he sees opportunities in the industry strengthening operations and execution as it matures. “This is a natural progression for any new industry, and people are beginning to pay attention to what really works and how to be an efficient operator,” he said. “When it comes to Ispire, because we are a public company, we have to uphold the highest standard from the jump. With that being said, we remain mindful of where the larger industry stands, and we have to deal with some inexperienced customers. We hope that through our behavior and collaboration, we can help them to think about their business more efficiently and strategically. We hope not only to do business with our customers, but to share our best practices with them. In return, we will be an integral part of their thought process and ecosystem.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage (ACRHF), Audacious (AUSAF), Atai Life Sciences (ATAI), Aurora (ACB), Avant Brands (AVTBF), Ayr Wellness (AYRWF), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), Cresco Labs (CRLBF), CordovaCann (LVRLF), Cronos (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), Curaleaf (CURLF), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), Trees Corporation (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), IM Cannabis (IMCC), Innovative Industrial Properties (IIPR), InterCure (INCR), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lotus Ventures (LTTSF), Lowell Farms (LOWLF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Optimi Health (OPTHF), Organigram (OGI), Planet 13 (PLNHF), Red White & Bloom (RWBYF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor Financial (SHFS), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).