Summary
Advanced Vapor Devices (AVD) has quietly built the second-largest vape hardware company by market share (estimated based on dollar sales and volume), just behind CCELL. In my conversations with CEO, Alex Kwon, it’s clear that the company prefers to be heads down on execution, while letting the product, technology, and customers (such as Trulieve, Jeeter, Gold Drop, Blue River, Jetty) speak for itself. Despite maintaining a low profile, AVD was thrust into the spotlight following a significant intellectual property (IP) lawsuit filed by Smoore/CCELL in 2021 in the U.S. International Trade Commission (ITC). As the legal proceedings unfolded, it became apparent that AVD was the primary target of CCELL. However, just last month, the ITC delivered a definitive ruling in favor of AVD, finding no violation of their products.
The ITC decision inadvertently fortified AVD’s global IP strategy, charting a new path in the battle for IP dominance in the still nascent cannabis vape industry. In the months ahead, expect increased visibility from AVD as they launch new products in collaboration with some recognizable companies in the Cannabis industry.
Alex Kwon, CEO and Co-Founder
Alex leverages two decades of experience leading cannabis companies to strategically guide AVD’s growth and success. His extensive cannabis industry knowledge encompasses plant biology, cannabinoid science and leading-edge extraction and vape technologies. AVD operates on fundamental values that guide its daily operations propelling it to make impactful change as a force for good. Alex excels at building teams and architecting how businesses work, as he strives to inspire and influence how other entrepreneurs can think differently and challenge the status quo.
His industry background includes founding the Humboldt Consulting Group, where he directed land acquisition and development in Northern California, and founding Sungrown in Washington State. As Sungrown’s CEO, he oversaw a targeted resin farming approach, that when coupled with best-in-class extraction and formulation, produced the premier cannabis oils found in top product brands in the state. Alex enjoys spending as much time as possible with his wife and three children.
Company Background and Overview
After extensive experience in cultivation and extracts, Alex realized that he should focus on value-added products like vapes and concentrates as they would continue to gain market share against flowers. Having experienced many reliability and consistency issues in vape hardware firsthand, Alex co-founded AVD in 2018 and delved into studying the entire supply chain to find ways to produce vape hardware at a fair cost while ensuring improved reliability, consistency and flavor. AVD embarked on a mission to assist companies and extractors in tackling the additional complexities of vape hardware, which added to the already challenging process of extraction and formulation. Furthermore, given the dissatisfaction caused by subpar customer service and products from incumbents like CCELL, there was a clear and urgent demand for a solution that could genuinely fulfill customer requirements and earn their loyalty. AVD had found a big product and customer service issue to solve in a multi-billion-dollar segment of the Cannabis industry.
Focus on Cannabis Vaporization
Although vaporization technology started in e-cig, the inputs couldn’t be more different. According to Alex, Smoore/CCELL ported the technology over from the e-cig industry, which created one of the problems that provided a window for AVD to enter the market and create a better offering. AVD has a sophisticated global team of American and Chinese designers, engineers, and quality control experts that operate their state-of-the-art factories in Shenzhen and Southeast Asia. Right from the beginning, they decided to do things differently–AVD decided not to work with the traditional e-cig factories. Because after all, there’s no point starting with partners whose expertise or technology is not with cannabis oil. Throughout our conversation, it was clear that Alex’s focus is exclusively on cannabis vape hardware, through and through, and does not get distracted by opportunities in the e-cig industry (even though that may open them up to potential investments from strategic Tobacco companies).
According to data from Headest, retail vape sales across 6 states (CA, CO, MI, NV, OR, and WA) were ~$2.5B ($2.3B cartridge, $164M disposable) in 2021. In a March 2023 report, vapes were the #3 most popular category in Canada and #2 most popular in the US, capturing 17.1% and 23.6% market share respectively.
Smoore International Holdings Ltd (6969.HK)
Smoore has a ~HKD55B (~$6.5B USD) Market Cap and focuses primarily on e-cig products. They manufacture brands that include Vaporesso, CCELL, FEELM, and others. Out of nearly 7 million premarket tobacco product applications (PMTAs), only 23 e-cigarette-style products have been approved for marketing by the U.S. Food and Drug Administration. Some of the approved products are manufactured by Smoore, such as Njoy Ace, Njoy Daily, Logic Power and Logic Pro devices. CCELL is Smoore’s cannabis vape brand. Distributors of CCELL in the U.S. include Greenlane and TILT Holdings (Jupiter Research), which supported the claim.
AVD prevails over CCELL in USITC patent proceedings
In October 2021, the U.S. International Trade Commission (USITC) instituted an investigation based on a complaint filed by Shenzhen Smoore Technology Limited (CCELL’s parent company) of Shenzhen, China. The complaint alleged violations of section 337 of the Tariff Act of 1930 related to the importation of certain oil-vaping cartridges and components that CCELL claimed infringed upon its patents. In April 2023, the USITC ruled definitively in favor of AVD (and others including Blinc Group and Greentank) and against CCELL. Of the three patents asserted at USITC by Smoore/CCELL, the USITC found no violation by AVD’s cartridges, components, or products.
“Today is an enormous victory for the US cannabis vaping sector,” stated AVD Co-Founder and CEO Alex Kwon. “AVD’s disruptive technology, reliability, and exceptional service will enable us to safeguard our rights and innovate for our clients’ benefit. The victory demonstrates that justice has been served for our industry and consumers, and fair competition will prevail despite CCELL’s baseless legal tactics.”
“We are grateful to the International Trade Commission for exposing CCELL’s bullying of US companies,” said Michael Brosgart, AVD COO. “AVD shouldered the burden of this litigation because we are committed to our industry, and believe consumers deserve the highest quality products. We can’t wait to share our upcoming innovations.”
This decision is hugely important for the industry as it allows for a more competitive and fair landscape for vape hardware manufacturers like AVD. Had Smoore/CCELL succeeded, certain products would have been banned from importation and the vape market would have seen materially reduced competition, which results in less innovation and higher prices–both of which are ultimately bad for the cannabis companies that sell vape products and the consumers that buy their products.
Differentiation in Vape Hardware
While certain vape devices may look similar, what’s inside, the engine, is where the differentiation occurs. AVD’s defense of the USITC action shed a significant spotlight on the heating cores and the heating/cooling mechanisms within vape devices. While the external appearance of 510 carts may be the standard, AVD’s customers recognize that the true focus lies within the internals of the 510 cart. Alex firmly believes that AVD stands as one of the cannabis industry’s strongest companies when it comes to IP strategy, enabling it to safeguard, innovate, bring to market, and defend IP assets, establishing a competitive advantage. Furthermore, the process flow of filling and capping the cartridge, and the refinements made by AVD are crucial aspects of their innovation. Additionally, there are upcoming product launches that will introduce various form factors, and process automation that expand on what is possible in this space.
#2 Market Share in Vape Cartridges
While CCELL remains a market leader in vape cartridges, Alex believes that AVD holds a significant position as the likely second-largest in market share (on volume and/or sales). AVD’s customers exhibit strong brand loyalty, and as new markets emerge, the company is poised to continue capturing market share by virtue of the value it consistently delivers to customers.
Profitable through Prudent Reinvestment and Capital Planning
AVD’s success lies partly in its self-funded approach, enabling the company to take a long-term approach. This aspect empowers AVD to make decisions based on its own strategic vision rather than succumbing to short-term demands to please investors. By maintaining profitability and practicing prudent reinvestment, AVD has established robust guardrails and solid financial fundamentals. This deliberate approach ensures that growth is carefully managed and aligned with the company’s core values.
As a non-plant touching company, AVD also gains access to traditional bank financing, leveraging the stability and support provided by established financial institutions. Moreover, AVD’s vertical integration and control over its supply chain contributes to their nimbleness in adapting to the ever-changing dynamics of the cannabis industry. This ownership structure and financing strategy facilitates flexibility, allowing AVD to navigate the ebb and flow of the industry with agility and responsiveness.
By combining self-funding, a long-term outlook, strategic growth, and a firm grip on the supply chain, AVD has positioned itself to thrive in the cannabis industry, while maintaining independence and control over their operations.
A Success Story Rooted in People and a Deep Appreciation for the Plant
AVD’s customer acquisition journey is a testament to the company’s relentless focus on its clients, an intimate knowledge and appreciation of the cannabis plant, and a commitment to serving an industry that has historically been underserved.
In its early days, the company recognized that product safety, superior performance and reliability would help it stand out in a competitive field.
AVD’s current customer acquisition strategy has been finely tuned over time. It recognizes that acquiring new customers isn’t just about a good product, but about the total customer experience. AVD focuses intensely on its customers and their needs, leveraging their feedback as a springboard for improvement and innovation. As they look to the future, AVD intends to maintain the core principles that have fueled its success, while also adapting its strategy to match the rhythm of the evolving industry. One example is additional investment in data-driven marketing and product innovation to stay ahead of market trends.
Overall, AVD’s success is attributable to a holistic approach wherein the whole is greater than the sum of its parts. It extends beyond merely offering a superior product or delivering top-tier customer service. A crucial component of AVD’s unique equation for success is its people. They are the lifeblood of the organization, providing the crucial DNA that defines AVD’s identity. When you combine these elements—a stellar product, excellent customer service, and a dedicated team – into a unified strategy centered on execution, the result is explosive growth in service of the plant and the incredible people that work across the cannabis industry.
