Rising High: Exclusive talk with vape tech developer Ispire Technology

In this edition of “Rising High,” The Fly conducted an exclusive interview with Steve Przybyla, Chief Legal 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 nicotine products are marketed under the “Aspire” brand, as well as several partner brands which are under exclusive license 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. “Ispire is in a great position vis-à-vis the cannabis industry in that we can lean on our nicotine vaping expertise, which is a much larger market with many more diverse products and a larger supply chain,” Przybyla said. “For example, we have operations in Malaysia now that will reduce tariff risk no matter who is elected. Beyond that, we are taking technology from the nicotine space such as age-gating and we’re able to apply that technology to the cannabis industry making products safer and controlling access. We are excited about applying these new technologies from one vaping sector to another.”

In February, Ispire partnered with Touchpoint World Wide, d/b/a Berify, and Chemular International to form a joint venture seeking to expedite innovation in the e-cigarette technology space, including the development of secure, user-friendly solutions for age verification and age-gating nicotine vapor devices.  “We have a joint venture that we own 40% of and essentially the technology is a low-energy, Bluetooth chip which is on the power management circuitry of the vaping device,” the CLO said. “That connects to a data map either on your iPhone or Android device. You register on the app, set it up and it’s got dataset verification from companies like CLEAR and Incode. Once you set up an account, you are able to interact with the app and essentially you do a biometric facial recognition that will unlock the device and allow you to use the vape.”

The development is a significantly different approach from traditional point-of-sale age-gating, he said. “If somebody is buying something at point-of-sale, they can give it to somebody who is not authorized to use it,” Przybyla said. “Whereas here you need to be within two or three meters of your phone to vape that device. It drastically cuts down on the ability for improper usage.”

ANDS PARTNERSHIP: In October, Ispire announced a five-year master distributor agreement with ANDS to bring its Hidden Hills Club nicotine portfolio to the Middle East, North Africa region and Global Duty-Free markets. Under the agreement, Ispire and ANDS will commercialize the Hidden Hills Club brand across 20+ MENA markets, leveraging ANDS’ partnerships with major duty-free operators, providing access to over 45 airports, cruise ships, airlines and diplomatic facilities. “ANDS is a really great distributor, and they have a very robust footprint in duty-free,” the CLO said. “They have over 40 duty-free locations, so from a duty-free perspective that is where brands go to get recognition. The sales might not be dramatic, but the brand identity is very strong. Marlboro places well there, Winston places well there. We’re very excited about putting Hidden Hills on shelves next to those really signature brands and showing that they are in the same class.”

He noted ANDS also has relationships with the UAE, the Kingdom of Saudi Arabia, Lebanon, Egypt, and Morocco. “These are all countries that we are targeting for Hidden Hills brand rollouts,” Przybyla said. “We already have some great relationships with retailers now through ANDS. We’ll probably be launching the Hidden Hills brand in the UAE later in this quarter, so we really feel like they are the right partners. They are focused on compliance and quality, they have great relationships and they have been operating in the space for a long time.”

I-80 VAPE FILLING: Additionally in October, the company unveiled its “I-80” vapor device filling machine, which can produce 4000 fully filled and sealed vapor devices per hour. “We have two different types of products, our normal product which is called Signature and a self-sealing product,” the CLO said.  “That product has silicone technology, where you don’t actually have to cap these devices. Capping vapor devices takes up a lot of labor and time and there is a lot of room for error. Once you fill a device, you have to hammer or twist the cap on and it’s a daunting, tedious process.”

With the I-80’s self-sealing technology, the needle goes through the silicone membrane, fills the device, withdraws and self-seals, he said.  “It’s very efficient and very effective,” Przybyla said.  “MSOs, SSOs and co-packers that do high volumes are going to like this technology. The I-80 simply takes it to another level with the ability to do 80 heads at once. really increasing efficiency ten- or twenty-fold.  People can do a much higher throughput with this machine and the reception we just got at the Benzinga conference was really phenomenal with a lot of large operators.”

EARNINGS: In September, Ispire reported a FY24 loss per share of (27c) on revenue of $151.9M, which compared to a loss per share of (12c) on revenue of $115.6M for FY23. “We have gone from the last couple of years $88M to $110M to now about $152M in revenue, so you can see that we are ramping up very aggressively,” the CLO said. “We are going to continue to ramp aggressively, and we feel good about what we are doing this year. The revenue growth shows that there is market demand, and the market is very receptive to the value of the products that we are putting out there. As we expand into international markets, we are seeing this play out as well and in the U.S. market, there is real demand for a U.S. based team with a high-touch level of service in the vapor hardware market.”

SCHEDULING: In August, the Drug Enforcement Administration announced that it would be holding a hearing on December 2 on the proposal to reclassify cannabis as lower-risk and reschedule the drug from Schedule I to Schedule III. “It’s the most positive news we have gotten so far,” Przybyla said. “I have been in the space for ten years now and we have always been hoping for a rescheduling or a bill here or there. I’ve become a little bit more skeptical and jaundiced over time as those promises have failed to materialize, but I think this is the most real thing we have seen in the space.”

He added he expects rescheduling to have many impacts, but it will not be a panacea for some companies that are overextended, have too much debt and are simply not running their businesses well. “For other companies that are good operators that have been able to get close to profitability, I think the removal of 280E is going to be very important,” the CLO said. “Access to financial services, whether that be capital markets or regular banking, is going to be very important. Rescheduling is going to strengthen the sector as a whole. I don’t know if it’s going strengthen every company, but I think companies that are winning right now will continue to win and will win better.”

The announced hearing by the DEA struck down the hope of a Final Rule rescheduling cannabis coming before the 2024 Presidential Election, however former President Donald Trump announced his support for the potential rescheduling in September. “I think we will get rescheduling either way,” Przybyla said. “The political winds have just moved so far on cannabis that neither party wants to make it an issue. They want to get it done, they want to take it off the playing field so they can focus on more polarizing topics. It may be quicker under Harris than Trump, but either way I think it gets done in the next twelve months.”

He added when cannabis is moved to Schedule III, he expects a lot of institutional capital to flow into the space. “There is a hesitancy to invest in something that is illegal,” the CLO said. “Rescheduling won’t solve the issues with the way state operations and licensure works and there will be FDA violation going on at large, but I think it certainly takes a lot of pressure off. It is unclear how the exchanges are going to treat rescheduling. Our hope is that Nasdaq allows for relisting from the CSE and other exchanges in Canada and that banking services can be provided without having to do your FinCEN notices. I’m optimistic. It may not happen overnight, but I think over the next two or three years, a lot of this space will evolve and overcome.”

SAFER BANKING: In September 2023, 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. “That bill is really on ice until we see rescheduling,” Przybyla said. “It is a low probability shot of anybody wanting to get behind that while the DEA is actively rule-making on a reschedule. I don’t think it makes sense from a political capital perspective or from a timing perspective until the DEA makes their decision to get a Final Rule published and it goes into effect. Then we may see SAFER Banking or derivative legislation re-emerge.”

HEMP REGULATION: In September 2024, Senator Ron Wyden introduced the Cannabinoid Safety & Regulation Act, which would regulate cannabinoid products derived from hemp. The CSRA would establish a national age restriction and require that all hemp-derived products are tested for safety. “I do believe that regulation for industrial hemp products is appropriate and necessary,” the CLO said. “Packaging and testing requirements, prohibition on sales to youth, quality standards etc., those things are just important for any consumer good whether you are using cannabinoids or anything else. I do believe we will move into a state where these things will be regulated hopefully at the federal level.”

FLORIDA VOTE: In April, the Florida Supreme Court approved an adult-use measure for the November ballot. “Florida should legalize based on the data that I’m seeing,” Przybyla said. “I read what is online, I follow the polls and we have some employees in Florida that we’re talking to as well as the people in the state. I think that will do a lot both for Florida and for the cannabis movement at large in the country. Florida is a very large state and a very important state politically. If we get adult-use there, I think the momentum builds and it puts more pressure on Washington to take action.”

PRODUCT CATEGORIES: According to cannabis research firms, flower still holds the biggest share of sales of any cannabis product category, followed by vape. “In the extracted product space, I believe vape and edibles become the dominant players,” the CLO said.  “Cannabis sales to date have partially been driven by new users, but mostly by existing users moving the sales from the gray market to the legal market. As we bring new participants into the space, it’s important to note smoking flower is one of the most enjoyable, but one of the most challenging ways to ingest cannabis as a new user.”

Extracts from cannabis, whether vape or edible, are much more user friendly for the new consumer, he said. “I believe as we onboard the next 20M cannabis users domestically, they will predominantly be using extracts to start,” Przybyla said. “They may move to flower and pre-rolls eventually, but I do believe extracted products will become the dominant form of cannabis consumption. It’s about ease of use, lack of smell and portability. I think there are a lot of benefits to the way extracted products work and function as a consumer good versus flower.”

CHALLENGES: When asked about the largest hurdles facing the vaping space, the CLO pointed to public perception and supply chain concerns as two of the biggest challenges. “The e-cigarette youth vaping crisis has created a public health backlash,” he said. “Now people believe combustion is safer than vaping, at least on the e-cigarette side. We’re dealing with how we re-educate the country to tell them e-cigarettes are 90% safer than regular cigarettes and it’s a smart thing to switch. Perception is a major challenge, people hear the word vape and just think unhealthy.”

Looking at the supply chain, Przybyla noted tariffs will be going up on products produced in China regardless of who is elected. “Companies will really need to figure out their supply chain,” he said. “Roughly 95% of vape manufacturers in the U.S. are using Shenzhen-based hardware and if those tariffs go up, the cost of goods are going to go up. That price is going to get passed on to the ultimate consumer. Companies that are wise will find ways to diversify their supply chain in countries that do not have the same tariff obligations that China-to-U.S. imports have.”

OPPORTUNITIES: As the vaping space develops, the CLO said he sees the biggest opportunities in age-gating technology and creation of safer devices with controlled usage. “There’s a lot of opportunity to innovate the actual vape itself,” he said. “The coil technology is constantly evolving. Lower temperatures, better draws, longer-lasting vapes and preservation of oil quality are all very exciting innovations, but we’re most excited about the age-gating technology. It may be a revolution in the way vapes are thought about and in the way that people trust in vapes as they are not going into kids’ hands. We are really excited about implementing that technology not just with nicotine, but eventually cannabis.”

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage (ACRHF), Ascend Wellness (AAWH), Atai Life Sciences (ATAI), Aurora Cannabis (ACB), Avant Brands (AVTBF), Ayr Wellness (AYRWF), The Cannabist Company (CBSTF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Cansortium (CNTMF), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), Curaleaf (CURLF), CV Sciences (CVSI), Cybin (CYBN), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Flora Growth (FLGC), Trees Corporation (CANN), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), Heritage Cannabis (HERTF), High Tide (HITI), IGC Pharma (IGC), IM Cannabis (IMCC), Innovative Industrial Properties (IIPR), InterCure (INCR), Lowell Farms (LOWLF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MindMed (MNMD), NewLake Capital (NLCP), Numina’s (NUMIF), Optimi Health (OPTHF), Organigram (OGI), PharmAla Biotech (MDXXF), Planet 13 (PLNHF), Psyence Biomedical (PBM), Red White & Bloom (RWBYF), Relmada Therapeutics (RLMD), Reunion Neuroscience (REUN), RIV Capital (CNPOF), Safe Harbor Financial (SHFS), Skye Bioscience (SKYE), SNDL (SNDL), Stem Holdings (STMH), TerrAscend (TRSSF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Vireo Health (VREOF) and 4Front Ventures (FFNTF).