Namaste Technologies Inc: Cannabis Firm Weathers Scandals, Enters Edibles Market

Namaste Technologies Inc
iStock.com/Olena Bondarenko

Namaste Technologies Inc Buys Stake in Choklat

You can’t be everything to everybody, unless you’re Amazon.com, Inc. (NASDAQ:AMZN)—or maybe Namaste Technologies Inc (OTCMKTS:NXTTF, CVE:N).

Namaste Technologies Inc, a Canadian e-commerce cannabis company, has not had an easy go of it as of late. Neither have its investors; since September, NXTTF stock has gone from $3.04 per share to less than a dollar.

In February, the company terminated CEO Sean Dollinger. In March, it confirmed that its auditor PwC had resigned and that it will not be able to meet its March 31, 2019 filing deadline.

There are also other issues.

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Through it all, though, Namaste continued to march toward its goal of being the worldwide leader in e-commerce for the cannabis industry, recently announcing that it is entering the edibles market through the partial acquisition of Choklat Inc.

Namaste is also streamlining its operations. It might sound like a mess, but the company is taking the right steps.

At its current price level, Namaste stock is sitting in a much more attractive range than it was a few months ago.

Namaste Technologies Inc Overview

Namaste Technologies Inc is an online retailer of medical and recreational cannabis products and accessories. It has often been said that Namaste wants to be the Amazon of the cannabis market. The company has even trademarked the term, “Your Everything Cannabis Store.” (Source: “Fact Sheet,” Namaste Technologies Inc, last accessed March 7, 2019.)

Vancouver, British Columbia-based Namaste operates the largest cannabis e-commerce platform in the world, with over 30 web sites in 20+ countries under numerous brands. These sites draw in over 600,000 monthly visits and have a database of roughly 1.5 million users.

Through its subsidiaries, Namaste sells cannabidiol (CBD) products, vaporizers, glassware, growing equipment, hemp, apparel, and accessories. It’s a one-stop-shop for cannabis.

In addition to Canada, Namaste has a strong presence in Germany, the U.K., Europe, and Australia. Thanks to new supply channels, it is also entering emerging markets in South America. (Source: “Home,” Namaste Technologies Inc, last accessed March 7, 2019.)

Namaste Stock Information
Market Cap $174.2 million
Beta 21.72
52-Week Change -57.1%
52-Week High $3.05
52-Week Low $0.00
Shares Outstanding 307.2 million
Float 279.0 million
50-Day Moving Average $0.89
200-Day Moving Average $1.29

(Source: “Namaste Technologies Inc. (NXTTF),” Yahoo! Finance, last accessed March 7, 2019.)

As you can see in the chart below, investors in Namaste stock have been on a volatile ride since the start of 2018.

NXTTF stock enjoyed a fabulous run in the months leading up to the legalization of recreational cannabis in Canada in October 2018. That also happened to be the same month that the broader markets experienced a sell-off, which was exacerbated by the market-wide meltdown in December.

Chart courtesy of StockCharts.com

Namaste Fires CEO

Like the broader cannabis industry, Namaste’s share price got off to a great start in 2019, climbing an eyewatering 115% in the first week of trading. Since then, however, the company has been hit with a number of scandals—which has not helped its share price.

In early February, Namaste fired Sean Dollinger, its chief executive officer, and said it planned to take legal action against him for breaching his fiduciary duty.

A few weeks later, Namaste announced it had reached “a mutually agreed upon settlement” with Dollinger, which resulted in Dollinger staying on as an advisor. Both parties withdrew their previously announced legal actions. (Source: “Namaste Technologies Announces Settlement with Sean Dollinger and Provides Corporate Update,” Namaste Technologies Inc, February 19, 2019.)

Namaste Loses Auditor

On March 5, the company confirmed that PwC is no longer the company’s auditor. Namaste is in advanced discussions with potential successor auditors. (Source: “Namaste Technologies Announces Auditor Resignation and Provides Corporate Update,” Namaste Technologies Inc, March 5, 2019.)

As a result, Namaste does not believe it will be able to meet its March 31, 2019 deadline for filing its annual financial statement.

Advertising Troubles in Brazil

Namaste also said that the National Health Surveillance Agency in Brazil advised the company that it had identified irregular online advertising of certain tobacco products on a web site operated by Namaste.

As a result, Namaste is temporarily suspending the sale of all of its products in Brazil until a compliance review is completed.

According to the company, sales of these kinds of products in Brazil are expected to represent roughly eight percent of Namaste’s global revenue for the 15 months ended November 30, 2018. (Source: Ibid.)

Namaste Streamlines Its Business

Namaste also said it was taking a second look at its initiatives and decided to suspend certain businesses. This includes the introduction of “Namaste Café,” a cookbook, and the “H.E.A.L.” product line.

In addition, the company said it terminated its agreement with ORH Marketing Ltd.

Management said it expects the termination of these marketing and related initiatives to result in annual cost savings of roughly $3.0 million and have minimal impact on the company. (Source: Ibid.)

Namaste Enters Edibles Market With Big Stake in Choklat

It’s not all bad news.

In the midst of all this chaos, Namaste announced on March 6 that it had entered into a share purchase agreement to acquire 49% of Calgary, Alberta-based Choklat Inc. for $1.5 million in cash consideration. (Source: “Namaste Enters the Edibles Market with 49% Acquisition of Choklat,” Namaste Technologies Inc, March 6, 2019.)

Choklat is a premium chocolate manufacturer with existing sales through its e-commerce web site and a network of distributors across Canada.

On the physical front, Choklat recently entered into a supply relationship with grocery store giant Sobeys Inc. and already has products in 25 stores in Alberta. Choklat expects to roll out its products in all of Western Canada (and beyond) in the coming months.

“Choklat is a great acquisition for us with a vast offering of existing products that can be easily infused with THC or CBD and sold as edibles,” said Meni Morim, interim CEO of Namaste Technologies Inc. (Source: Ibid.)

Recreational cannabis is only legal in Canada and Uruguay at the moment, but that will eventually change. And when it does, Namaste will be well on its way to ship cannabis edibles to its five warehouses around the world.

And it’s expected to be a lucrative market. Between 2018 and 2025, the global cannabis edibles market is expected to soar from $2.4 billion to $11.6 billion, at a compound annual growth rate (CAGR) of 25.4%. (Source: “Global Cannabis Edibles Market Will Reach Over USD 11,564 Million By 2025,” Zion Market Research, February 14, 2019.)

This seemingly inexpensive acquisition could prove to be a smart move for Namaste.

Analyst Take

To be fair, it looks like a large number of once-patient Namaste stock investors have run for the exits. It’s not as if—on the surface—they don’t have good reason: Namaste Technologies Inc has been beset by some unseemly scandals.

That said, these problems appear to be the kind that the company is able to overcome. What we do know is that Namaste is likely going to continue to be a global leader in the e-commerce cannabis industry.

NXTTF stock continues to be a great cannabis stock with an excellent outlook for 2019. In fact, investors may look back to this period and wish they’d paid more attention to what’s actually going on at the company.