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Namaste Technologies - Vaporizing Shareholder Value (80% Downside)

May 04, 2018 9:35 AM ETLifeist Wellness Inc. (LFSWF), LFST:CA162 Comments


  • Management has a well-documented history of failure coupled with repeated misses on their financial/operational targets; CEO used to be in the knock-off purse business.
  • Management is operating in a viciously competitive/fragmented market and acquisitions appear to be the only source of growth; vape revenues declined 44% recently despite M&A.
  • Namaste elicits many signs of being a rollup of unprofitable companies, resulting in ceaseless dilution and mounting losses; impairments are but another red flag.
  • CannMart poses significantly less benefit than the company suggests; Cronos Group (a top 5 cannabis player) just recently valued its investment in CannMart at nil.
  • Even if CannMart gets a sales license, Shoppers Drug Mart (and other big players) will likely dominate, as they are better funded and established; CannMart is already behind in the medical market.

Executive Summary: Vaporizers Segment Seems Broken; Cannabis Distribution Is Not Namaste's Game (CannMart); Questionable Management Histories

Namaste Technologies (CSE:N) (NXTTF) has taken full advantage of the recent cannabis market hype, proclaiming itself to be a world-class leader in vaporizers and smoking accessories with a massive option for revenue growth via its very own direct-to-consumer cannabis sales portal. This report aims to prove otherwise and bring into question the lofty valuation Namaste has achieved. Namaste’s performance in the vape market has been steadily worsening and is obscured from investors through temporary revenue-increasing acquisitions.

Namaste’s other growth strategy may have as many issues as the vape business. While CannMart lags way behind larger, more established competitors like Canopy’s Tweed Main Street and Aurora’s Aurora Certified program, it will likely also have its hands full with Shoppers Drug Mart and competitors on more established tech platforms like Shopify. But its problems don’t end there, there is always Leafly (acclaimed to be the best online destination to source cannabis), Weedmaps, and many others.

One of the reasons we question Namaste's lofty growth projections is the track record of management. Faced with tremendous competition in both the vape and cannabis markets, this team's track record does not give us confidence that Namaste will succeed. The latest acquisition reinforces this stance, as Namaste is acquiring Findify AB for US$12 million in cash and stock.

That valuation is a whopping 31 times Findify's 2017 sales of C$503,170. Findify is described as a "global leader in A.I. powered e-commerce personalization." It is hard to believe that it is much more than an e-commerce company because they disclose 1200 customers in 60 countries, which means that the average customer only paid C$419 to Findify in 2017. I suspect true, in-depth AI would cost multiples of that.

Introduction: The Namaste Pitch… Vaporizers

This article was written by

Grumpy Bear is a former research analyst who now invests his own money and provides independent research opinions.  Most of the research is focused on short ideas because there are enough sell side analysts and paid promoters hyping stocks on the long side.

Analyst’s Disclosure: I am/we are short NXTTF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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