In a landmark agreement, Ispire Technology Inc. (NASDAQ: ISPR) announced last week that it has entered into an exclusive 30-year agreement with U.S.-based Hidden Hills Club to “globally manufacture, distribute and commercialize Hidden Hills’ branded nicotine products such as reduced-risk e-cigarettes.” A leader in vaping technology, research and development, design and innovation, Ispire further announced that “initial Hidden Hills nicotine products are scheduled to roll out in the United Arab Emirates and South Africa in the coming weeks, followed by the United Kingdom and European Union over the next few months.”
In its release, Ispire added that the “e-vapor and cannabis vaping markets are expected to reach $29.9 billion and $11.6 billion in 2024, respectively, driven by the secular trend of healthier tobacco alternatives.” As such, they are markets ripe for development by Ispire, a company with “over 200 issued patents and more than 800 patents pending across China, the U.S., E.U. and other countries.” Cannabis Business Executive, which profiled the company in April, spoke this week with Ispire Chief Legal Officer Steven Przybyla about the strategic thinking behind a deal that will last past the halfway mark of the century.
The two companies are not strangers, he said. “Hidden Hills has been a customer of ours for the past two years on the hemp and alternative cannabinoid product side, and they’ve been one of our best customers,” he noted. “We’ve really sort of helped them get off the ground. They’ve helped us with significant orders, they’ve paid on time, and they’ve ordered innovative products. We’ve also done some interesting collaborations with them in the hemp space, including a dual-flavored vaporizer, which allows you to put two different types of oils into it.
Steven Przybyla, Chief Legal Officer“We also did a launch in the Spring called Hidden Hills and Friends, a collaboration with many interesting brands in the hemp and THC space, which was exciting,” said Przybyla. The idea for a long-term collaboration developed over time. “We’ve spent a lot of time with them going to international trade shows on the cannabis side, and they have a large interest in expanding into the nicotine market. As we started going to these trade shows, we eventually started going to nicotine – which were really tobacco – trade shows together, and we saw the interest and the demand for a unique brand and value proposition in that market.
“As you are aware, on the international scene there are a lot of manufacturers dumping products across the world under very thinly marketed brands,” he noted. “It’s all about, ‘How can I make a couple cents on a couple 100 million units.’ But we wanted to stand for something with real substance, so as we went to these trade shows the idea came together that Ispire’s hardware and Hidden Hills’s brand would make a really, really strong collaboration space.”
Why Hidden Hills Club? Do they have a deep reservoir of customers to target? “I don’t have precise numbers, but it’s very deep,” said Przybyla. “The brand is about 36 months old, but they have really significant reach. Kevin Durant, who we just saw win Olympic gold medal on Saturday, is member of their brand, so it’s a wide stable of influencers and celebrities under their club brand. It’s really a lifestyle brand. They sell clothing and merchandise, and they use that lifestyle brand to also sell alternative products, whether in the hemp space, now in the nicotine space, or in other spaces.
“Their reach is significant domestically,” he added, “and they’ve grown significantly internationally, particularly in the UK, Europe, and the Middle East, where the brand is very well known. We’ve got well-known Middle Eastern retailers, particularly in the UAE, looking for Hidden Hills products on their shelves, and have inbound demand coming to us, to say, ‘We want a number of Hidden Hills vapes on our shelves.’ So, come October, November, we think this is a brand that will have a lot of success.”
Will they be offering a range of products targeting all the different price points? “We’re going to be much more targeted than that,” said Przybyla. “We’re going to sell a tight range of products designed for a user between the ages of 21 and probably 45, who is hip and looking for that California culture, and looking for the influencer vibe and relationship to what their activities are on social media. The incredible part about Hidden Hills reach is that it’s universal. People can connect with their favorite celebrities and influencers, to say, ‘I’m part of this Hidden Hills Club, too, just like my favorite celebrity.’ It’s creating that buy-in to the brand that I think has such a strong demand pull.”
That said, they are going to restrict the SKU selection going into these markets while exploiting the inherent strength of their origin story. “We don’t want to over saturate,” noted Przybyla. “We don’t need to hit every price point. These will be mid- to premium-priced products. We believe we’re selling a high-value brand out of the West Coast of the United States, and we think internationally that California energy carries very, very well. We’re based in California, but the further you get away from California, seemingly the cooler it becomes. I was just in Dubai, where I spoke at the World Vape Show, and I was shocked at the pull that California – Made in California, the culture in California –has in that part of the world, and we’re going to leverage that to launch this brand successfully in that hemisphere.”
Notably, Ispire will not need to invest a fortune to build new production facilities to meet the anticipated demand. “We already manufacture nicotine products under our original house brand, Aspire, which has been an open system e-cigarette brand since 2010 or 2011 and sold globally since 2013,” said Przybyla. “We do between $85 and $90 million a year in e-cigarette revenue through Aspire, primarily in the UK, Europe, a little bit in in the Middle East, and a little bit in Southeast Asia.”
In a sense, he added, “This an extension of an existing business. We have a house brand right now, Aspire. Hidden Hills becomes our second house brand, and with a 30-year license, we will be able to really invest in the brand equity, in the marketing, in the trade market, in the promotions. So, we’re able to take our existing manufacturing infrastructure and leverage it to just the new product, which is simple, and we’re able to take our existing distribution network and framework and leverage that to a new product, so our distributors are extremely excited.”
He noted that the deal is considered landmark “in that we’re taking a strong, well-known distribution channel for Aspire products – $85-$90-$100 million some years – and layering in a noncompetitive brand to a different section of the market, and we’re getting incredible traction from retailers and distributors around the world. So, I think that’s a landmark, in addition to the extension of Hidden Hills from a traditional hemp company in the United States into what will be a global nicotine brand on an international basis.”
There are specific reasons why Ispire will not be competing with Aspire for tobacco sales. “We’ve done a lot of market research and really thought about that,” said Przybyla. “I’ll direct you to the Aspire products on our website. They are very different products. You can refill Aspire products with e-juice to e-liquid, but Hidden Hills products are going to be closed systems. They are primarily going to be disposables and pod systems pre-filled with e-juice and unable to be refilled. So, we’re not competing with the same consumer that will be generally buying our Aspire products. It’s a little bit different consumer segment, and a little bit different product development implementation.”
Is the plan to peel off, for lack of a better term, cannabis consumers into this new area. Is there any connection or overlap with the cannabis industry? “I don’t know if we’re peeling off cannabis consumers, because the markets we’re going into are generally dry,” replied Przybyla. “The UK, the UAE, South Africa now has legalized, so there is a strong cannabis market there, but I would not say there’s cannibalization appeal on the cannabis side. What we think is interesting here is that we’re going to be able to build brand awareness in the nicotine space, which generally has more permissive advertising than the cannabis space.
“So, perhaps the UK legalizes, South Africa is already legalized, and then you’ve got a lot of continental Europe that will likely legalize cannabis over the next decade,” he added. “When the time is right for cannabis products to come into that market, the Hidden Hills brand will already be a household name for quality, consistency, and West Coast culture, and we think that becomes a very interesting brand extension when cannabis takes root.”
Clearly, the 30-year engagement is meant to account for that evolution over time, but does Ispire know what it wants its place to be in that future ecosystem? “I think we’re going to continue to be innovators in the space in terms of delivering products that push the envelope for consumer preferences,” stated Przybyla. “The Hidden Hills team is involved with product development. They understand what’s cool, what’s trending in California, but not just in California. They have contacts all over the world, and they travel the world regularly, so in the short term, we’re really going to push the envelope here.
“The 30-year duration of that license allows us to do exactly what you said,” he added. “It allows us to grow and evolve with the way nicotine and eventually cannabis and hemp evolve on a worldwide regulatory stage. I would be foolish to predict what the regulatory landscape will look like 10 years from now, and this 30-year license prevents me from having to renegotiate a deal in 10 years, in 15 years. It gives us 30 years, essentially almost a lifetime, of ability to invest, to adapt, to be flexible, to launch new products, relaunch products, and gain territory and ground across the world with this brand. And I think what’s impactful for us is that we’re not really dealing with a ticking time bomb but have a very long runway with which to be nimble, to be innovators in the market, without the pressure of a renewable discussion coming down the pike.”
Was Ispire open to other similar if not identical deals? “This is a signature deal for us,” insisted Przybyla. “We have others in our portfolio, so we really evaluated what would not be cannibalistic, or what would not shave off consumers from our core business right now. As I mentioned, from a nicotine perspective, the Hidden Hills brand will be very different than our house brand, Aspire, but as we add more brands to the portfolio, we may continue to do deals that have a similar flavor. But we think Hidden Hills is going to be one of our two flagship brands, in addition to our house brand, that will have global appeal and global traction. So, this was a major deal for us.”
Does this deal target an existing market or carve out a new one? “I think we’re carving out a new market from what is traditionally been Chinese manufacturers with very thin marketing programs dumping e-cigarette products into the marketplace,” said Przybyla. “There is no other brand that has the brand equity of Hidden Hills that’s going on shelves in the UK, in continental Europe, in South Africa, in the UAE. This has deep brand equity, a deep stable of influencers and celebrities, deep cultural appreciation as a whole, and a merchandise line that is very different from some factory dumping 300,000 units on a retailer with some fancy name that ends with Bar. There’s not a lot to those brands but a name and a pricing strategy, whereas we are bringing an ecosystem where consumers can feel involved and invested. In some ways, this hasn’t been done before in this category, which is why we’re very excited to pull this off.”
Is this market similar to the Wild West-type of markets here in the States, where hemp is lightly regulated, if at all, and a lot of people – bad players, good players – flood in with a brands people don’t know? “I wouldn’t say it’s a Wild West market,” said Przybyla. “These are well-regulated markets. You’ve got TPD in the UK and EU, which is a listing standards program that requires you to submit testing of your products, and register your devices, so there’s not a lot of dumping.
“What is untamed about it is the nature of the products coming from China, the similarity of the products, the lack of strong brand identity of the products,” he added. “As I said before, the only thing that really separates some of these brands is a pricing strategy, maybe one or two words in the names of the products are very similar or nearly identical, so we’re looking for a level of differentiation in which to carve out a space in the market for the consumer who wants to feel connected and invested in the products that they’re using.”
I can order from Hidden Hills Club right now from Connecticut, but not these new products just yet. “I believe you can order Delta-8 or HHC products, and we supply that hardware to them, they fill it, and then they ship them out,” said Przybyla. “Ispire is separately is going through the PMTA process for a variety of e-cigarette products – a disposable and a pod system – both of which will have age-gating technology. That’s several years off, but when those devices do launch, we’ll decide which brands to market them under based on results domestically and internationally in terms of focus groups and utilization.”
Was Hidden Hills at all threatened by the Miller Amendment currently attached to the new Farm Bill under consideration, which redefines hemp? “I can’t speak for the Hidden Hills leadership team,” said Przybyla, “but my sense is they are well hedged into a traditional licensed market and other products that would not be within the Miller Amendment.” The Miller Amendment is a threat to the whole industry, he noted. “That said whether it passes or not, the toothpaste is out of the tube on hemp-derived intoxicating products.”
As far as how Wall Street reacts to the news, some details will have to wait. “We’re really excited about it,” Przybyla said of the market’s anticipated reaction. “We’ve stopped giving fiscal year guidance, we’re in our fiscal year 2025, which just started on July 1. That said, I think Wall Street will see significant increases in our revenue due to the brand extensions and new launches in this fiscal year. We’re looking to add significant revenue to our total gross revenue over the fiscal year, and we’re very excited about that. We think once we report those earnings, the Street will take a lot of interest.”
It sounded as though Ispire wants to not just capture this new market but own as much of it as possible. “We think in the markets that allow for this sort of lifestyle and branding ethos, that we will be able to be dominant players for these types of products,” agreed Przybyla. “That’s not saying we’re going to be dominant in the e-cigarette segment. Those markets are so large that even percentage points mean tens if not hundreds of millions of dollars, and each of these countries we’re launching in is massive. So, we’re hoping we can get several percentage points in the first year and then increase that over several years, and that will equal tens if not hundreds of millions of dollars to our top line revenue numbers.”
Another unavoidable takeaway, at least for me, is that Ispire is determined to stay nimble and flexible for many years to come in order to meet whatever happens in an ever-changing environment. “We’ve been lucky to position ourselves as being able to be flexible,” said Przybyla. “Certainly, the relationship with Hidden Hills has been extremely strong. We all attended the World Vape Expo in Dubai, and this deal really came together when we saw the market demand and potential for a global launch of the nicotine brand under the Hidden Hills name.
“I know both parties are excited,” he added. “We talk several times a week about product, about launch, about marketing, but we’re going to continue to remain nimble and really keep our eyes open and listen for opportunity. I think we’re in a unique position via the big tobacco companies, where they need to buy their innovation, but we’re still nimble enough to create our own innovation, so we’re really excited about what we’re going to be able to do going forward.”
Before we rang off, I asked Przybyla if he had any cannabis-specific news to share. “Yes, we are now likely that the largest seller of hardware in South Africa,” he said. “We have an exclusive distribution relationship with a group called Dank Pack, and have sold hundreds of thousands if not millions of units down there, and demand is ramping up. We’re really excited, and we’re also launching nicotine products in South Africa in short order. It’s a great market for us, one that’s been sort of untouched by Big Tobacco and big corporate interests in China. We’re finding a lot of traction in that market, and we’ll use that to launch into other sub-Saharan African countries.”
Did they see the cannabis industry continuing to grow and strengthen as the years go on? “I’m optimistic it will continue to evolve the way it’s evolved,” said Przybyla. “I think it’s had a couple of life cycles. 2008 to 2014 was the first life cycle, 2014 to 2018 was the next, 2018 to 2023 was the next after that, and I think we’re seeing a new life cycle now in terms of what sort of companies will emerge, succeed, and survive. I think it will continue to evolve, and the shape will look different as we go forward, but we have great news in Germany, with legalization, and I think as we see success in Germany, we will see countries like Switzerland, France, and others in continental Europe, flip the switch to legalization. And certainly, as we see demographics change globally over the next 15 years, I think we’ll see waves of legalization as the population changes from a traditional Baby Boomer prohibitionist view to a more Gen X, Millennial view, and we’re excited about that. We’re excited about riding that wave to supply the next generation of cannabis consumers with great hard work.
“In terms of federal movement, I’m still waiting for some of the promises of 2018 and 2020 to be fulfilled, and I’m done holding my breath,” he added. “We’re hopeful over the long term about the way the country is going, but in the short term it’s just too unpredictable and too volatile to make any bold predictions. But we’re excited for when [change] does happen, and we’re ready to supply the industry both now and in the future upon rescheduling or descheduling.”
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