Los Angeles-based Ispire Technologies (NASDAQ: ISPR) is a three-year-old company built on the foundation (and reputation) of a global enterprise with many years of experience as an ODM (original design manufacturer) of premium all-in-one disposable, 510 cartridge and pod system vaporizers. As such, when it came time to target the cannabis industry, the goal of the newcomer was to take the industry’s nascent but already packed vape sector by storm, and according to its founder and co-CEO, Michael Wang, that is precisely what Ispire has done. Originally created in 2009, the company was already a leader in its field, having launched the world’s first commercially available e-cig product long before Juul introduced their e-cigarette to the world.
“That [company] was under the name Aspire, which essentially commanded a market-leading position,” said Wang during a recent call with Cannabis Business Executive. “We had the largest market share in the U.S. from 2009 all the way to 2016, when Juul showed up. Along the way, we also introduced a majority of the core technologies used in the entire vaping industry.”
Michael WangInnovation was the foundation of its success. “Today, if you look at every single vaping device, they all share one design theme,” noted Wang. “The heating coil, or the chimney, are all vertical. We call it the bottom-up design, and that design actually came from us. Early e-cigs had the heating coils placed horizontally, and oil would leak out to it, so we designed the first bottom vertical coil to increase airflow efficiency and generate a better vapor. That’s just one example. We also introduced the world’s first so-called big cloud technology. You remember years ago, when people would compete to see who could make the biggest vapor cloud? That was our technology.”
As fate would have it, Wang and Aspire aligned in a uniquely cannabis way. “About four years ago,” he explained, “I was running a cannabis company called Sunday Goods in Arizona, when we launched our fresh frozen live resin line, and we tried the hardware available on the market. But not a single piece of hardware met our expectations because every single piece we tried overheated. Back then, hardware was mostly used for distillate oil, which would require similar temperature as the e-cig e-juice, about 430 to 470-degrees Fahrenheit. But when that kind of temperature is applied to live resin – which requires a much, much lower temperature to get you the flavor that you need – it simply burns it.
“I looked for hardware for a long time, but I couldn’t find anything,” he continued. “And then somebody said, ‘Michael, if one person has a solution for you, it would be the guy nicknamed ‘The Godfather of the E-cigarette.’ He was a founder of Aspire. After I introduced myself to him, he said, ‘Let me get something together for you.’ Now, other suppliers had tried to lower the temperature of the device, but when the temperature was lowered, they couldn’t produce much vapor at all. So, this guy went to work, and a few weeks later, he came back with a device.
“I tried it with live resin oil,” added Wang. “It was a crazy good and produced a great amount of vapor at 270-degrees Fahrenheit. It also tasted great, and it looked just like our typical disposable 510-thread carts, but inside he used the so-called dual-coil technology, and that was able to bring the temperature down and yet still yield a great deal of vapor. He was able to pack that technology into it, and after we tried it, we all went, ‘Holy cow, somebody finally was able to design something for the live resin industry,” and that quickly led me to decide to create a new company with him. Hence, the creation of Ispire.”
CCell was already a fixture in the vaping universe. “CCell entered the market I would say eight years ago,” explained Wang. “They came when no other Chinese companies came. That’s why overnight, CCell became the dominant player, commanding essentially 99 percent of the market share, and that’s why they established themselves really well at that point. We came three years ago, but we came literally with a storm.”
The plan was to knock off all competing products. “CCell was the leading player at that point, but there were a few other players in the space following CCell’s initial success, and by the time we came in, the market was actually quite crowded,” recalled Wang. “I can count more than eight, nine players, all squeezing in with a similar market share among them. On the other hand, they all shared the basic technology that CCell sold. In fact, I would say most people were using similar or the same basic technology.
“That’s why when we introduced the dual-coil technology to the industry three years ago, it was brand new, absolutely transformative, and that was a big part of our success for the last three years,” he added. “It was somebody introducing a technology that can yield low temperature and great flavor. Two years ago, very serious brands were giving us feedback, and essentially they were saying our devices yield the best flavor bar none. That was very important, because for cannabis users, flavor is a big deal. If you overheat, you burn oil, and you get this bitter taste. And that’s very different from the smooth taste you get from our devices.”
The Aesthetics of Ispire
I added that taste is an absolutely essential quality for the cannabis connoisseur who seeks an pure expression of the plants genetics. “Absolutely,” said Wang. “But even if you’re not a connoisseur, you can still tell which one hits smoothly. I use vapes myself, and some just cause an itchy throat, and you’ll have sort of a bitter taste in the mouth. But when you have the right device, it feels good all the way through, from the mouth feel to how the lungs react. That’s why low temperature is so important, but not everybody can master this technology. Everybody tried to lower the temperature using their existing devices or technology, and then, as you can imagine, vapor production just got less, and less, and less, and eventually disappeared.”
It kind of begged the question, what is the most important component of a vaping device? Is it the cartridge or pod, the heating element, the battery? Does one take priority over the others? “The most important thing is how you regulate the temperature profile,” answered Wang. “With traditional technology, you essentially start taking a hit with the auto on, or if you put your finger on the battery to power it on, and with the typical temperature profile, the temperature goes from room temp and goes up linearly, so you cannot control what you are experiencing. The longer you take a hit, the hotter it gets. If you take a short hit, you may not get much vapor at all, and if you take a long hit, and it’s a bit too long, you may get a burned sensation. But good devices will regulate the temperature profile so that you are able to raise the temperature fast, but not force the temperature to keep going. You want to raise it fast and keep it flat to get a consistent temperature, so that whether you take a two-second hit or a six-second hit, the temperature is pretty much the same, and you get the same desirable flavor. It’s truly a combination of everything you mentioned – the heating coils, the battery, the control PC board, and how the air flows – so everything works together.”
But the raw materials used to make Ispire components are every bit as important as their design, stressed Wang. It was one of the main points of a talk Wang gave at the recent Benzinga Capital Conference. “I focused largely on consumer safety,” he said of his presentation. “What’s important from Ispire’s point of view is to protect consumers, including the hardware material we use in heavy metal prevention. I also brought up a new topic for the cannabis industry. I basically said that with federal legalization taking shape, the FDA will get involved in regulating the industry when that day comes. Obviously, the most important concern for the FDA is how to prevent minors from getting their hands on cannabis, specifically to vape, and I mentioned that we are developing so-called age-gating technology for point-of-use applications, not point-of-sales. Essentially, we will introduce a technology where you have to validate your age and identity before you can start using the device. Once it’s been validated, you can use the device freely, but it’s important to protect minors. So, consumer safety and protecting minors are a key focus for me.”
While the issue of heavy metals in vaping hardware is not new, I asked Wang how much of a problem it has been over the last couple of years. “Not only in the e-cigarette industry,” he said. “In cannabis vaping, similar bad actors in search of cost reduction exist in a lot of the factories that make the hardware. They sometimes use far too cheap raw materials. With Ispire, from day one, we made it very clear, any metal we use in the device – especially any oil-touching part – needs to be stainless steel, and if it’s the oil tank, we use glass for most of the products. As you know, stainless steel and glass are absolutely safe because they cannot be eroded by terpenes. For some products, we use food-grade plastic for the oil tank material that, again, doesn’t get eroded by terpenes.”
Not everyone is so diligent. “Because it’s not regulated, most of the players in the industry are in a self-regulated mode, and some of them just don’t care,” said Wang. “I would say with more than 50 percent of very important parts – the chimney or heating core parts – they use so-called nickel-plated brass. Essentially, it’s brass that is coated with nickel to make it shiny, as if it’s precious. But what they don’t understand is cannabis terpenes could take that layer of nickel off easily. That means it’s going to get into the oil and eventually get into the lungs of consumers.
“Unfortunately, players like that exist, and a lot of brands don’t pay enough attention to that sort of thing,” he added. “They tend to focus on price only, they buy it, and then they sell the product in the market. That’s not how we deal with every product we design. First, we use stainless steel only, in most cases glass, and in some cases food-grade plastic, and we submit our devices to highly reputable labs in California and ask them to test the devices with 100 percent terpenes, which means it’s as safe as it gets. We test in 30 days, 120 days, 180 days, and then 365 days, to see if there is the slightest trace of heavy metal. All our products are tested that way. We provide that for brand-new customers so that they have confidence using our devices.”
Is the safety of vaping hardware a subject that regulators need to be more aware of when they’re developing ongoing regulations? “Yes, absolutely,” stated Wang. “I think most of the states, in their infancy phase after legalization, focused on the number of licenses and what do you can do. Very little attention was paid to testing the chemicals in the product, and sometimes they focus on only the oil side. In fact, most of the states focused on the oil side, testing to see if the oil contains pesticide and other heavy metals introduced to the plant through fertilizers and so forth. But all states should also require hardware to be tested, so that not only is the oil used in the device safe, but the hardware is also safe. I think a lot of states overlooked that.”
Should every piece of hardware be tested, which would obviously be expensive, or are we also moving in a direction where only certain materials will be allowed with this type of combustion? “I think to be safe, each device should be tested, because part of the challenge facing the industry is the questionable players,” said Wang. “They may say one thing, but they may do a whole different thing. So, I think it should absolutely be tested.”
Questionable Characters
Sourcing has extended to many different countries, including Vietnam, Malaysia, China, and others. I asked Wang if these far-flung spots are where the bad actors and the bad materials are coming from. “Yes, I think so,” he replied. “There are over 400 factories making some form of vaporizer devices for scale just in the Shenzhen area of China. About a year and a half ago, the Chinese government tried to regulate the space. They issued a limited number of permits for players who have to meet certain scale requirements, certain history requirements, and a certain product technology requirement. But the requirements for the material used weren’t as clearly defined, and that creates room for what I call questionable characters. As of this day, there are still over 400 factories, and I think some factories who didn’t get a permit aligned themselves with the factories who got the permit. As a result, the number of factories didn’t really decrease.”
“Now, in that collection of 400-plus factories, there are also highly reputable, highly trusted, and high-integrity players, and there are a large number of players that you can just one-hundred percent trust,” he added. “As a result, the U.S. is on the receiving end of that, from our point of view. We produce our products in two places. On one hand, we are still working with our factory partners in China. We have two partners in China. On the other hand, we have built a factory that is owned by us in Malaysia, not in China. We are increasing our output from that Malaysian operation as we speak, and over time, we want to make sure that more than 50 percent of our products are produced in the Malaysian operation rather than in China.”
Is the overall vaping market getting larger? “Yes,,” said Wang, “outside the US, the vaping market has grown tremendously. The whole e-cig industry started in the US, and in the last five years, quickly became major for us in Europe. In the last couple of years, that has further spread out to the Middle East, Africa, Asia, all the way to South America markets as well. And it’s growing tremendously fast. By all estimates, on the nicotine side, worldwide there is about $150 billion in retail revenue including black market, and half of it – about $80 billion – exists in the U.S. A majority of the nicotine products sold in the US are e-cigarettes and are not FDA/PMTA approved. That will change over time, but the overall global market for e-cig has been growing tremendously.
“On the cannabis side,” he added, “cannabis revenue relative to e-cig revenue is still very small, but that side is growing as well, and more and more countries are legalizing cannabis. As a result, vaping for that sector is also growing very rapidly. Outside the U.S., I can count Spain, Australia, South Africa, Colombia, Uruguay, even a medical market like Brazil has a lot of vape pen devices for cannabis. So, worldwide it is growing. I think from a percentage growth rate point of view, cannabis is growing faster than e-cigarettes, but e-cigarettes are growing by dollar amount far more than cannabis vaping. It’s just a tremendous vaping market globally now.”
Pod Versus Cart
Are pods more popular than carts now. Ispire produces both. Is one better than the other? “There are some different trends on the nicotine side and on cannabis side,” said Wang. “On the e-cig side, it is very different in North America. Especially in the US, disposables are the dominating form factor, the pod system is second, and mod is becoming a niche market. In other markets, like Europe, disposables became very popular in the last few years, however the regulators are changing the landscape. The French government and the UK governments passed regulations to completely ban the disposables, and they will both take effect this year, and Belgium also came up with a regulation to ban disposables altogether. By all indications the entire EU is crafting legislation to ban disposables early next year, so Europe will quickly become a mod market and a pod system market, and disposables will disappear.
“On the other hand,” he continued, “in newer markets like Southeast Asia, Indonesia, Malaysia, Thailand, and the Philippines, because disposable incomes there are less than in more advanced economies like North America and Europe, consumers are more cost conscious, so they tend to prefer mod for the moment. But I can see that disposables and the pod system will gradually take hold and become more dominating factors.
“The cannabis side is somewhat different,” he noted. “Of course, the U.S. currently represents the only meaningful market, and here, I would say disposables account for two-thirds of all the vaping sold, the pod system is second, commanding about 25 to 30 percent of market share, and the traditional 510 threaded cart is becoming less and less and less relevant. Nationwide, it has just about a 10 to 15 percent market share.”
Will these trends continue? “Yes, I think that trend will absolutely continue,” said Wang. “Consumer education is obviously an important process over time, though, and between disposables and the pod systems, I think they will exceed 90 percent total market share. And who knows, in a couple of years the 510 threaded cart may disappear altogether.”
I heard that a disposable one-hit vape was making the rounds at a recent show. Could something like that stick? “I personally don’t think so,” said Wang. “Because consumers will become more money sensitive. No matter how small or how little material is used, if you toss a device after one use, it’s not the best use for the material. That’s why I think, if anything, the market will move in the opposite direction. As more and more players come to the market, as the cannabis plant becomes cheaper to grow, and as oil becomes cheaper, you can imagine the hardware component of the cost will become more of a decision factor.
“If you take a vaping device, whether it’s a half-gram, one-gram, or two-gram device, the hardware cost is pretty much the same,” he continued. “Let’s take a disposable as an example. In the past, all your costs were very high, so relatively speaking, if you had a one-gram device, the hardware would cost about $2, one-gram of oil would cost about $4, and the labor and manufacturing costs would be another $2. But over time, as oil costs continue to drop, hardware costs will become a bigger percentage of the total build cost. That means the more puffs you get from a device, the more economical it is for the consumer.
“That’s why I think brands over time will try to change the regulations,” he added. “In most markets in the U.S. today, there is a regulation [requiring] a one-gram device for cannabis. That’s why it dominates. But over time, with lower oil prices, I think regulation will relax, and you will see a two-gram and even three-gram device, because it’s more economical for consumers on a per-puff basis. So, I think the market will move in that direction more than in the single puff direction. Will there be a market for single puffs? Absolutely. Will it be the dominating factor? No, I don’t think so. It will be in the opposite direction.”
Signature Verses Ispire One
The question then is how Ispire and companies like it intend to meet the demands of the future. For Ispire, the potential answer comes in the form factors of the company’s Signature and Ispire One lines, so that no matter the demand, there is a product to meet it. Is that the goal?
“Yes, indeed, our Signature line versus our Ispire One line,” responded Wang enthusiastically. “The top difference is the Signature line is meant to support legacy types of brands that have certain ways of doing things and certain legacy products they want to maintain. The Ispire One is a revolutionary approach to how we do things. Historically speaking, whenever you step into a manufacturing or co-packing operation, if you observe the process, generally the devices would come in two pieces – the main body for the device and then the mouthpiece or tip of the device. Then, brands, operators, or co-packers would fill the device with oil, whether manually, semi-automatically, or fully automatically. However, after you fill the tanks, you need to seal them rather quickly with a mouthpiece. That’s a two-step operation, and two-step operations were historically a big headache for the brand and a big part of the reason for leaky devices.
“There are two key reasons for that, “added Wang. “Poor design by factories didn’t understand cannabis oil, and that’s why they leaked. But reason number two, which is nearly as big a deal as poor design, is that when the mouthpiece is put on manually by the operator, or even in a semi-automated fashion, there will always be devices that will not be sealed securely. When the operator hears the click, they think the mouthpiece is securely in place, but sometimes it’s not secure, so air will get into the oil tank. When air goes in, the pressure is equalized inside versus outside, gravity will make the oil leak from the bottom of the device, and that’s what happened. The Ispire One devices eliminate that capping step. They are designed as one complete device, and because the mouthpiece is an integral part of the body, there is no longer a need to cap after you fill.”
That’s not all, said Wang. “You may wonder, how does Ispire One get filled? We supply our customers with an automated filling machine, in the most cases free of charge. You load our devices onto the machine, the machine does the job, it fills it, and when it’s filled, it’s ready to go. You no longer need to cap. It was a significant IP advantage introducing that technology, and I think that as time goes on, it will become a new way of operating for this industry.”
Is its adoption an indication that the client base is changing, moving to larger producers who produce different types of products, in addition to the legacy growers who want have their own vape pens branded just for their own farms?
“You’re totally right,” responded Wang. “Nationwide, there are thousands of brands sold in the dispensaries. Some are scaled operators, and some are just like you described – growers who want to have their own brand of vaping devices. For those people who are used to doing small volume, they can buy our Signature devices, but the Ispire One devices will be most welcomed by the large-scale operators, the MSOs, because they can produce consistency and quality, and they need operating efficiency to reduce costs as well. So, we solve those problems for them with the Ispire One devices.”
So, what does that market look like right now? Is it independent producers and also MSOs producing their own brands at scale across the different markets? “Yes, those are our target customers for Ispire One,” said Wang. “But we also work closely with some scaled co-packers. They work with multiple brands, and that’s where they gain efficiency and cost savings.
“We certainly have a large number of customers, from small mom-and-pop type of brands to large customers,” he added. “However, we only officially launched our Ispire One series in November of 2023, barely five months ago. But the reception that product line got from MSOs has been very, very encouraging. In fact, we recently signed one MSO as a customer because of that product line. I am not at liberty to share the name, but it is because of Ispire One, and we are in the process of signing another deal with another MSO, also because of Ispire One, which has truly proved to be I would say the value-added solution to a lot of the scaled operators.”
It sounded like it was also the main differentiator between Ispire and its competitors. “Oh, yeah,” agreed Wang. “There’s one other thing about Ispire One team. We have over 70 people in Los Angeles, and remote employees across the country, and everybody came from the cannabis industry, and everybody knows key players in the industry. So, we don’t just think as a hardware supplier like the other Chinese factories. We are a solution player. We don’t just compete on the price of the hardware. We keep thinking, how do we help make the operator’s life easier? How do we help them improve their profit margin? How do we help them reduce their costs? Ispire One is one example. If we were a pure hardware seller, we wouldn’t even think about such an approach. But because our team is so deeply entrenched in the industry, we think of solutions, and that’s how we came up with the idea. It’s a key differentiation.”
It is not the only difference, added Wang. “Our approach is, I have to say, very different from any other hardware provider in the space, in that we take a what I call an ecosystem approach towards this business,” he explained. “Our competitors generally would say, ‘Come buy my hardware, I’ll make it a five cents cheaper than what you’re buying today.’ That’s their approach, but we rarely focus on price. In key markets, we align ourselves with the best distros and we align ourselves with the best co-packers in each state, and sometimes we even align ourselves with the best extraction labs by knowing they are consistent, and they have high integrity, and then we work with those extraction labs, co-packers, and distros.
“So, when we go out to sell,” he continued, “we can say, ‘Tom, your brand is currently in 200 stores in California. If you work with us, not only do you get the best hardware, but you’ll also get the best oil, you’ll get the most competitive co-packing service, and the best distro service to get you into 600 doors. As you can imagine, nobody would say no to that proposal, and in that process, we’re not the only one selling our hardware. The distros and co-packers sell it for us as well because we enjoy working with each other, we trust each other, so we sell solutions, we don’t sell hardware.”
Aspirational Inspire
Does the company have established objectives for the rest of the year? “I’ll just focus on the cannabis side,” said Wang. “We do have objectives set for the team this year. From a revenue point of view, when we started doing business three years ago, we started from zero, and the following year, we grew the business to $20 million, and in the second year, we grew it to $40 million, we doubled, and our goal is to double it again this year. Our fiscal year ends on June 30, and we are basically striving to double our revenue again by June 30. So that’s our goal.”
Is that accomplished by bringing on more customers and also helping existing customers to become more profitable? “Both,” he replied. “We are diligent with who we take on as a customer,” added Wang. “On the one hand, we know we won’t be the solution for everybody, so we have to align ourselves with the right brands, and we are careful in selecting who we work with. Sometimes it could be a small brand, and if we are well aligned, and we could help them succeed, we work with them. Sometimes, of course, it’s a midsize, which brings stability, and more and more we are able to work with large brands. Right now, our sales are well distributed, and no one or two top customers dominate a big chunk of our revenue.”
Is there significant upside in the U.S. vaping market? “I think cannabis vaping will grow very fast,” said Wang. “Remember, eight years ago, cannabis vaping accounted for about 5 percent of total retail sales, and by the end of last year, the nationwide average was about 30 percent. And we know our overall cannabis industry grew quite nicely over the course of the last 8-10 years, but the vape pens share grew even faster. So, we expect that growth rate to continue. I think by the end of 2026 – literally two and a half years from now – vaping will account for 50 percent of total cannabis retail sales, and flower sales will drop to second.”
I never thought I would live long enough to see that. So, what are the biggest challenges to Ispire achieving its goals? “Honestly, the number one driver for that is new consumers,” replied Wang. “When new consumers, including female consumers, come into this market, they are not like the traditional connoisseurs. They don’t want to walk around smelling, so they don’t want to carry a preroll around, and they don’t want to carry flower around. And if they do want to take hits, they want to be subtle, discreet, but they still want the effect they want without smelling, and that’s why I think it will be very, very fast growing.
“A long time ago,” he added, “the first experience for a newbie would be through smoking a joint, but nowadays the first experience for new consumers often is through vaping and edibles, like a gummy. Edibles obviously have their own challenges, but vaping is easy to carry and to use, and more importantly, it becomes a fashion item they carry around. So, to compete effectively, not only do we need to make a better core technology, like our dual coil system, but we need to design very attractive devices. If it’s a part of lifestyle, it needs to look as good as it performs.”
Wang had spoken earlier about making safe products. If the vape market is going to grow as large as expected, it seems safety would be especially important, because the first thing to derail that progress would be something going seriously wrong. Is that why safety is so important?
“Oh, yeah,” replied Wang. “Safety is never just a project for us. Safety is a way of behaving for us. It is the bone marrow in every product we make. We don’t want to sacrifice or jeopardize consumer safety. Of course, we also cannot control what oil goes into it, but we can control that there is no heavy metal ever coming from our devices. That is a promise that we can provide.”
What about catalysts to help fuel that growth, like rescheduling or Safer banking? “Ultimately, I think rescheduling is key to the future growth of this industry in the U.S. market,, because it would help with a couple of things. Number one, it will immediately create a high demand for the products, and number two, I think when that day comes, the FDA will get involved no matter what for the benefit of the consumers, and there will be a nationwide standard requirement. So, instead of state-by-state regulation, there will be nationwide safety requirements, testing requirements, label requirements, and so on. And I think that will help inject confidence in the consumer’s mind that they can trust the products. Right now, it’s rather uncertain. If you know the oil, if you know the players well, you can trust them, but by and large in such an early stage of the industry, consumers have no means of really getting to know the operators well, so it’s still risky. But federal legalization will certainly create more trust in the product.”
And will the U.S. continue to be the leading cannabis market for the foreseeable future? “Think about it,” said Wang. “Americans essentially had many decades of first-mover advantage over the rest of the world, from medical used to adult-use, and even before then, cannabis culture was deep in American lifestyle. So, I think the U.S. will absolutely continue to be a world leader and a champion in the cannabis revolution. I think over time, as we understand the plant better, the U.S. will continue to lead not only by size, but by the cultural aspect, and by respecting plant medicine. So, yes, I think the U.S. will continue to be the leader not just for the foreseeable future, but for decades to come.”
And what is Ispire looking for? Are there particular companies or people that should pick up the phone and call? “Obviously, we would love for brands and MSOs to try our products and become believers in what we believe in, and work with us,” replied Wang. “I think that’s the key message. As they get to know us, they will realize that we are very different from other hardware providers. We’re more than that.”
Is that applicable to all markets? A handful of large companies are leaving some of the mature markets for more limited-license markets. Are Ispire solutions viable in both mature and new markets? “I think mature markets would certainly deeply appreciate what we represent, and I’m hoping the new markets learn from the mature markets,” said Wang. “Some states have more experience in both regulation and how the industry works, and newer states could learn from them. In the process, I hope we can become a core and trusted component for everybody involved.”
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