It’s been a minute since there’s been a cannabis IPO (initial public offering) and Ispire seems to have broken the drought as the e-cigarette and cannabis vape hardware company began trading on the NASDAQ Marketplace on April 4 under the symbol ISPR. However, the company didn’t raise nearly as much as it had initially planned when the company filed for the IPO in January.
Originally, Ispire had planned to issue six million shares at a price range of $6-$8 a share, which would have been between $36 million and $48 million. Instead, it dropped the share level down to three million and ultimately issued 2,700,000 million shares. The company did stay in the planned price range and managed to bring in $18.9 million. Shares moved up by over 7% to close at $7.55 on Tuesday.
Who Is Ispire?
Ispire was formed on June 13, 2022, and it has two operating subsidiaries, Aspire North America LLC, a California limited liability company, and Aspire Science and Technology Limited, a Hong Kong corporation. The company says in its SEC filing that it is engaged in the research and development, design, commercialization, sales, marketing and distribution of branded e-cigarettes and cannabis vaping products. “We sell our tobacco products worldwide except for the People’s Republic of China and Russia. Although we sold tobacco products in the United States in the years ended June 30, 2021, and 2022, we are limited in the product we may sell and, because the sales did not justify the marketing and regulatory costs, we have ceased marketing tobacco vaping products in the United States.”
The company reported revenues of $88 million for the year of 2022, which was an increase over 2021’s total revenue of $63 million. Cannabis hardware sales accounted for just $2 million of that revenue in 2021 and $20 million in 2022. In other words, the bulk of the company’s sales in 2022 were from tobacco products
The company reported a net income in 2021 of $3.6 million and a net loss in 2022 of $800k.
No Shareholder Power
Investors in the company will have little voting power according to the offering. The filing stated,
Because Tuanfang Liu, our chief executive officer, who is also director, and his wife, Jiangyan Zhu, who is also a director, beneficially own 71.5% of our common stock and will own 67.5% of our common stock upon completion of this offering (66.9 % if the underwriters’ over-allotment is exercised in full), and Mr. Liu owns 95% of the equity of our sole supplier, Mr. Liu has a conflict of interest.
In other words, Liu and Zhu have the power to elect all of the company directors and to approve any matter which is subject to stockholder approval. Mr. Liu also owns 95% of the equity in Shenzhen Yi Jia, which is currently Ispire’s sole supplier. Mr. Liu is the chairman of Shenzhen Yi Jia and his wife, Jiangyan Zhu, is its vice president of finance.
The price and other terms at which Shenzhen Yi Jia sells products to Ispire have been largely determined by Liu. In addition, as our chief executive officer, he has significant authority in the implementation of our business plan, including the commencement of our proposed manufacturing operations in Vietnam and California.
Ispire also wrote in its offering that on March 17, 2021, the FDA issued letters to four companies operating in the e-cigarette industry, including Aspire North America, requesting documents related to their social media marketing practices. Specifically, the FDA requested the documents “to further understand the relationship between rising youth exposure to online e-cigarette marketing and youth e-cigarette use,” and the FDA asserted in each letter that each recipient had “active brand pages on multiple popular social media platforms, a large number of followers, and did not use age restriction tools to prevent youth exposure.” Aspire North America said it provided the required information to the FDA. To date, the FDA has not substantively responded or taken any further action in the matter.
No Manufacturing Experience
The company said it plans to use the money raised from the offering to establish manufacturing operations in Vietnam and in California. However, it stated, “We do not have any experience in manufacturing operations, and in order to establish manufacturing operations, we will have to hire personnel with experience in setting up and operating manufacturing operations. With respect to operations in Vietnam, we will need to engage personnel who have experience in managing operations in Vietnam.”
Ispire was honest in telling its potential shareholders that the IPO is expected to be substantially higher than the net tangible book value per share of the common stock at December 31, 2022. The offering stated, “Assuming the completion of the offering at a public offering price of $7.00 per share, the midpoint of the proposed offering price range, if you purchase shares in this offering, you will incur immediate dilution of approximately $6.48 or approximately 92.6% in the pro forma net tangible book value per share from the price per share that you pay for the shares. Accordingly, if you purchase shares in this offering, you will incur immediate and substantial dilution of your investment.” The book value is $9.7 million.
The company also warned investors that most of the executives reside in China and any legal recourse would be difficult.