BUSINESS ANALYSIS REPORT - Q2 2021 - TECHNICAL420
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Business Analysis Report
Q2 2021
X
Namaste Technologies Inc. (TSXV: N) (FRANKFURT: M5BQ)
(OTCMKTS: NXTTF) is a Canadian cannabis and newly minted
wellness company that we have been following for several years
and believe that the market does not completely understand the
value proposition of its business units.
Namaste Thesis:
Market Data (as of May 26, 2021)
During the last year, Namaste reported a series of significant
developments and we are bullish on how the business has • Share Price: $0.21 CAD
advanced under an experienced management team. We believe • Market Cap: $83M
the leadership team is just starting to see positive results from • 52 Week Range: $0.19 - $0.53
its evolution and consider it to be an under-appreciated • OS Shares: 397M
opportunity for the following reasons: • Fully Diluted: 498M
• Sector: Consumer Tech/Cannabis
1. Namaste has reported several important milestones and we
are bullish on the near and long-term growth prospects that Namaste Technologies is a marketplace platform for cannabis and
are associated with its platform wellness products. At CannMart.com, the Company provides
Canadian medical customers with a diverse selection of hand-
2. The company has recorded significant advancements picked products from a multitude of federally licensed cultivators
through the formation of strategic partnerships and from and US customers with access to hemp-derived CBD and smoking
making accretive acquisitions accessories. The Company also distributes licensed and in-house
branded cannabis and cannabis derived products in Canada
3. Through its business units, Namaste is levered to several
through a number of provincial government control boards and
attractive aspects of the cannabis value chain and we believe retailing bodies and facilitates licensed cannabis retailer sales
the market undervalues this online in Saskatchewan. Namaste’s global technology and
4. At current levels, we believe that Namaste has a favorable continuous innovation address local needs in a burgeoning
cannabis industry requiring smart solutions.
risk-reward profile and a compelling valuation
About Namaste:
Namaste is a marketplace platform for cannabis and wellness products and represents a differentiated play in the sector.
The company operates an innovated multifaceted e-commerce platform using artificial intelligence to drive sales which
is comprised of the following divisions:
CannMart – Canada’s first licensed producer that is distinctly not a grower instead focused on creating the foundations
of an ultimate cannabis marketplace at cannmart.com, capable of increasing average order basket with its innovative
built in AI that also enhances the cannabis experience for all consumers. CannMart.com presently offers medical
cannabis within Canada and facilitates recreational sales in the province of Saskatchewan. In addition, CannMart Inc.
acts as distributor for a network of smaller licensed producers to provincial government buying bodies and runs a
processing and storage facility in Ontario.
CannMart Labs received its processing license from Health Canada in February 2021 and is established for Butane Hash
Oil (BHO) extraction using leading extraction technology, making it one of only a few facilities in Canada with such
capabilities.
X2
Continues to Add Leading Cannabis Brands to CannMart’s Artificial Intelligence Driven Marketplace Platform
In the last few weeks, Namaste reported major developments in regards to cannabis distribution announcing the
addition of leading licensed producers including Auxly Cannabis Group (XLY.V) (CBWTF), HEXO (TSX: HEXO; NYSE: HEXO)
and (The Green Organic Dutchman Holdings (TGOD.TO) (TGOD) to the CannMart.com platform.
We are favorable to the increase in the number of licensed producers and accessory suppliers as well as the quality of
the brands that are contacting Namaste to have their products featured on CannMart.com. The website offers these
companies a first mover advantage in a leading edge cannabis e-commerce platform and we will monitor how this
aspect of the story supports the growth of the business.
The COVID pandemic has significantly changed the landscape of the Canadian cannabis industry and we believe that
Namaste is well positioned to benefit from the shift. Licensed Producers are searching for opportunities to streamline
their distribution channels and we believe that Namaste satisfies this need through CannMart.com.
Going forward, Namaste plans to continue to leverage its marketplace platform, VendorLink, as companies are starting
to recognize the value that is added through the company’s innovative technology platform and is a trend that we
expect to become more significant over the next year.
X3
CannMart Labs Represents a Core Pillar of the Namaste Opportunity
Last month, Namaste reported a major milestone and announced that CannMart Labs was granted a standard
processing license from Health Canada. This represents a major development and following the announcement, the
company is focused on commissioning its state-of-the-art equipment.
Going forward, Namaste plans to leverage its existing sales license through CannMart Inc. to bring branded recreational
products to provinces in Canada where Namaste already has an established distribution network in place.
Namaste owns 100% of the CannMart Labs facility, a purpose-built oil extraction facility which utilizes state-of-the-art
extraction technology and is designed with European Union Good Manufacturing Practice (EU-GMP) certification
requirements in mind.
One of the features that sets CannMart Labs’ facility apart is that it is related to how it was designed to facilitate BHO
extraction methodologies while using best-in-class extraction technology. The BHO aspect of the story makes Namaste
one of only a few companies in Canada to have a facility with such capabilities and we believe our readers should be
aware of this aspect of the story as it gives the Company the ability to produce more specialized cannabis extract
products expected to generate higher margins.
Following commissioning, CannMart Labs plans to produce higher margin in-house branded cannabis 2.0 products to
sell to medical customers at CannMart.com and to recreational customers across Canada through CannMart’s network
of provincial sales partners. Initially, the 2.0 products that will be sold by Namaste include shatter, live resin, badder, wax
and with capabilities to expand future distillate product offerings to include vape cartridges, gel capsules, tinctures and
edibles. We are bullish on the growth prospects that are associated with this aspect of the market and will monitor how
CannMart supports the growth of the entire business.
X4
Year End 2020 Results Show Upside
In March, Namaste reported fourth quarter and full year 2020 financial results that showed growth on a number of key metrics. We
believe the business has reached an inflection point and are favorable on how the story has advanced as a real turnaround story.
During the fourth quarter 2020, Namaste generated CAD$8 million of gross revenue which represents a 100% increase when compared to
the same period last year. The growth is primarily attributable to an increase in revenue from the sale of cannabis products.
Following the end of the fourth quarter, Namaste reported several significant developments, and we find this to be worth highlighting.
From launching CannMart.com in the US to the addition of leading licensed producers on the platform, we believe the company is well
positioned to be a driving force in its evolution to be the world’s foremost personalized wellness marketplace.
Q1 Shows Cost Cutting and Revenue Growth Across The Board
One of the most important data points from Namaste’s earnings report was operating expenses. It’s apparent that for several quarters, the
management team has been focused on reducing costs. The first quarter earnings report showed that Namaste has been able to
significantly lower its operating expenses and we are bullish on this trend.
Over the next few quarters, management has stated it will be focused on executing on a strategy that is centered around making necessary
adjustments to its product mix to further improve gross margins. If Namaste continues to report improved margins in future quarters, we
expect the market to respond favorably to the trend and our readers should be aware of this.
Another important data point from the earnings report is related to how Namaste’s balance sheet strengthened. As of February 28th, the
company reported to have $31 million of working capital and benefited from closing a $23 million bought deal. At current levels, Namaste
has a $90 million market capitalization. This means the company is trading at a little less than 3x working capital and for that reason we
consider the risk-reward profile to be favorable
When compared to the same period last year, Namaste recorded a more than 110% increase in cannabis revenues (representing 47% of
total revenues). This represented the second highest level of cannabis as a percentage of total revenues and we are favorable on how this
metric has been improving.
Namaste showed how it has been able to improve the management of short-term assets by considerably lowering the amount of cash that
was used in operating activities. When compared to the same period last year, gross revenue increased by 13% while operating expenses
decreased by 10.9%.
X5
Planning a Multi-Faceted Expansion in the USA
With one eye open on the developing federal legislation story in the US, we were interested to see Namaste announce
in early February that it had received approval from the TSX Venture Exchange to proceed with selling smoking
accessories and hemp-derived cannabidiol (CBD) in the US.
The move into the US is the perfect example of Namaste’s goal of increasing the size of its total addressable market as
well as its plan of exploring the entrance into additional opportunities in the US as regulation evolves.
Namaste has gone live in the USA for American customers of smoking accessories and hemp derived CBD at
www.cannmart.com and we will monitor how the platform generates traction with US consumers. The company
leverages its VendorLink technology in collaboration with DankStop and PeakBirch Logic, Inc.
One of the more significant developments for Namaste in 2021 is related to the plan to broaden its total addressable
market and to evolve into a pre-eminent wellness company. Through this strategy, the company plans to connect
consumers to their wellness needs through non-cannabis pathways.
Namaste’s mission is to leverage technology to build the world’s first personalized wellness marketplace where
consumers can learn about wellness products, interact with a variety of brands, and make informed purchases.
A Management Team that is Focused on Execution
A few years ago, Namaste reported substantial changes to the management team and we are favorable on how the story
has advanced under the new leadership team. We believe the transition was more seamless than expected due to the
appointment of Meni Morim as Chief Executive Officer (CEO) and are favorable on how he has executed on key growth
initiatives.
X6
Prior to taking over as CEO, Mr. Morim joined Namaste as Chief Product Officer and we are impressed with how he has
been able to impact the growth of the business. During the last year, Mr. Morim has executed on several important
initiatives and we are bullish on the growth prospects that are associated with the platform.
We expect Namaste to continue to grow significantly each year their cannabis revenue and believe that the market
under appreciates this aspect of the story. By forming strategic relationships with leading Canadian licensed producers,
Namaste is creating a track record of execution and we attribute this to the management team.
Over the next year, we believe that the management team’s ability to continue to execute will be the most important
value driver for the entire business and are of the opinion that the market is discounting the growth potential that is
associated with the business.
An Attractively Valued Growth Story
At current levels, Namaste appears to be trading at a discount to its peers and is trading at 2x current assets. We find the
valuation to be compelling and are favorable on the risk-reward profile that is associated with the platform. We believe
the planned expansion into the USA market represents a major potential catalyst for growth and are bullish on this
aspect of the story.
Although it is challenging to value a cannabis company like a food, technology or clothing business, the liquidity metrics
(current ratio and cash flow) that are commonly used for these types of businesses can be applied to Namaste. When
analyzing Namaste with these metrics, we determined that it looks like an undervalued opportunity and find the risk-
reward profile to be attractive. Namaste is led by a management team that has a strong financial position to execute
with no debt which we believe is an important aspect of the story.
X7Disclosure. Compensated Affiliate. This report was authored by and is property of StoneBridge Partners LLC. All information and data relied
upon in drafting this report is publicly available. The author believes and considers its sources to be reliable, but does not guarantee the
accuracy or completeness of any information contained in this report. Any and all information, data, analyses and opinions are provided for
informational purposes only and is not intended, in any manner, as investment advice. Any projections or other information generated by
StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment
results, and are not guarantees of future results. None of the material contained in this report is intended as a solution or offer to sell or
purchase a specific stock or any other investment. This report is not directed to, or intended for distribution or use by, any person or entity
that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or
use of this report is contrary to any governing law or regulation. The securities discussed in this report may not be eligible for purchase and/or
sale in certain jurisdictions or by particular individuals. It is important that you check any and all governing laws and/or regulations that may
be applicable in your jurisdiction. Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks.
The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States
Securities and Exchange Commission. Please contact a Financial Advisor for professional advice regarding any and all securities investments.
This report is intended for informational purposes only. StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may
have positions in securities covered by StoneBridge Partners LLC. StoneBridge Partners LLC receives compensation from the company and/or
has a position in the securities mentioned in this report.
Pursuant to an agreement between StoneBridge Partners LLC and Namaste Technologies Inc. (N)(NXTTF) we have been hired for a period of 90
days beginning February 21, 2021 and ending May 21, 2021 to publicly disseminate information about (N)(NXTTF) including on the Website
and other media including Facebook and Twitter. We are being paid $6,000 per month (N)(NXTTF) for or were paid “0” shares of restricted
common shares. We own zero shares of (N)(NXTTF), which we purchased in the open market. We plan to sell the “ZERO” shares of (N)(NXTTF)
that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website
purchase without further notice to you. We may buy or sell additional shares of (N)(NXTTF) in the open market at any time, including before,
during or after the Website and Information, provide public dissemination of favorable Information.
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