Neptune Wellness Solutions (NASDAQ:NEPT) is a Canadian health and wellness company headquartered in Quebec. The sales of cannabis and CBD products make up most of their revenue. They operate in America by selling CBD and non-CBD health products. They sell products in all provinces of Canada in the recreational and medical cannabis markets, as well as CBD and non-CBD health markets. They are beginning to distribute their non-THC products globally.
The company has undergone some turbulence because of the pandemic and because of recent pivots in their business strategy. Neptune’s Q3 financial results show a decrease in revenue and an increase in operating expenses. Some revenue has decreased because of their business pivot from B2B extraction to end-product placement. Other revenues have decreased because of the lack of sales in health and wellness products, cannabis products, turnkey products.
The company is operating at a loss, but there is promise after recovery
Amounts in US$ | Q2 9/30/20* | Q3 12/31/20 | Q4 03/05/21 E |
CAP | 314.64M | 256.40M | 232.65M |
EV** | 293.78M | 251.87M | 283.85M |
Share Price | 2.11 | 1.56 | 1.53 |
Revenue | 21.5M | 2.6M | 8.44M E*** |
Cost of Revenue | 25.0M | 10.3M | |
Gross Profit | -3.4M | -7.7M | |
Operating Expenses | 16.2M | 21M | |
Net Income | -16.4M | -58.0M | |
Net Loss | -58M | -16.4M | |
EPS | -.15 | -.19 | -.13 E |
Cash | 6.8M | 25.3M | |
Accounts Receivable | 16.8M | 15.0M | |
Total Assets | 137.7M | 115.7M | |
Accounts Payable | 12.1M | 10.5M | |
Current Liabilities | 16.3M | 15.0M |
*Q2 and Q3 numbers may be found on Seeking Alpha
**EV calculations are from www.TIKR.com
***Revenue estimate is from Seeking Alpha
Q3 revenue consisted of CA1.567 million from Canadian sales, CA1.752 million from American sales, and CA533K from sales in other countries. Q2 Revenue consisted of CA7.996 million from Canadian sales, CA20.645 million from American sales, and CA44K from sales in other countries. Revenues from royalty streams from MaxSimil were CA523K for Q3 and CA339K for Q2.
There is a significant decrease in revenue from cannabis extractions for other business because the company stopped offering this service. Revenue is down in the US because of issues with SugarLeaf, a subsidiary of the company, which lost its business due to the pandemic. Because of the pandemic, SugarLeaf had to furlough employees and no longer produced product or placed orders with Neptune. Neptune decided to take accelerated amortization for the asset (CA7.7M and CA6.3M).
In addition, net loss was caused by issues with the introduction of new wellness products in America. The company introduced new sanitizer products as well as other pandemic-related health products. There were several problems with rolling out the products efficiently. Although the issues are fixed now and revenue will be seen from these ventures, the company had to apply for approval and license with the EPA and FDA before the products could be delivered in America.
The company used third party services to remedy the problem until authorization was approved, but the third party services were more expensive and there were delays in transportation and distribution. Delays in transportation and distribution have plagued all aspects of the company’s operations during the pandemic.
Their net loss of CA73.7 was due to a decrease in revenues, increase in cost of sales, increase in selling and general expenses, and changes in fair value, as well as revaluations of warrants. Of the net loss, there was an impairment loss of CA37.7M due to Sugarleaf. The company wrote down CA7.931M in inventories. Costs grew during the quarter due to growing overheads related to production, lack of raw material, supply chain and transportation issues, and new product launches.
The company has been making Direct Offerings and selling Warrants to raise capital. On their Q3 report, they list an offering last July with proceeds of 12.6M (after fees) and another Direct Offering along with Warrants in October with proceeds of $35M (after fees). In February, the company announced their newest Direct Offering of $55M (before fees). With this working capital and their current assets, there is no risk of liquidity or insolvency. Cash on hand outweighs their current liabilities. Offerings and Warrants guarantee their future activities.
Current predicted Q4 revenue as found on Seeking Alpha shows an increase in sales to 8.44M. It is yet to be seen if the costs of sales and operating expenses continue to set the company at a negative EPS and net loss. Neptune’s business strategy is fit for the current market conditions and their revenue and financial results should improve. Their pivot strategies require time for maturation and return. Below is a chart of their last four quarterly reported revenue and net loss.
Amounts in US$ | Q3 | Q2 | Q1 | Q4 |
Total Revenues* | 2.6M | 21.5M | 8.3M | 6.8M |
Net Loss* | -58M | -16.4M | -8.4M | -27.9M |
*Source is Seeking Alpha
Neptune Wellness has introduced new products in the cannabis, CBD, and wellness markets
In previous years, Neptune made revenue from extraction of cannabis and hemp biomass for other companies (B2B). Their new business strategy focuses more on end-products and white label products. They have entered into a strategic distribution partnership with a global consumer goods company and expect revenue from other global distribution supply lines.
The company’s newest cannabis and CBD brand is called Mood Ring and they are currently selling the products in Canada (THC and CBD markets). They have other new brands. Neptune Wellness Forest Remedies sells CBD oil tinctures as well as non-CBD health products in America. Their Jane Goodall Wonders of Africa brand offers essential oils and hand sanitizer spray. The Neptune Wellness brand sells disinfecting wipes, hand sanitizer gel, and air thermometers. Mood Ring is their newest brand.
The company has a patent on their special kind of Omega-3 fish oil. They are selling it in the health supplements market and conducting research on its efficacy. Their Omega-3 line sells under the Ocean Remedies brand. The patented fish oil is called MaxSimil and the company believes that its use can increase the absorption of cannabinoids in the human body. Their current study has shown that their fish oil blend is better absorbed in the body than other fish oils. THC and CBD bond with fats, so there is some truth to using a fat like fish oil to help the absorption of cannabinoids.
Neptune is readying itself for federal legalization in America. In November 2020, Neptune opened an office in Florida to begin lobbying for federal legalization. Meanwhile, they sell CBD products and non-CBD products in the American health and wellness market.
With the new business strategy, brands, and distribution lines, Neptune should come out of their recovery with increased revenues and growth. The company is positioned to continue in their success and in capturing new markets for their products. Their future earnings reports will confirm such speculation.
Stock price performance is on a down-trend, but there has been movement in the recent rallies
1-Year Stock Charts (Source: www.StockCharts.com)
Neptune’s stock price has been on a down-trend throughout 2020. In a year, it has decreased about 21%. You can see on the chart where the price increased during the recent cannabis rally. The stock price has tested new bottoms and now is on a new short-term uptrend. On Balance Volume and Accumulation/Distribution Lines are decreasing, although daily trading volume has increased over the last month because of the rallies and recent attention in the cannabis industry.
Here is a chart of its performance in 2021.
YTD Stock Chart (Source: www.StockCharts.com)
The cannabis rally, which did not affect the price much until February, brought the price to $3.15 per share. It is currently at $1.53. There was a stock market rally late Friday afternoon and Neptune’s price began to rise before market close and the stock has been up this week Monday and Tuesday with the current rally. This stock will continue to ride the waves of the larger market, since 30% of the shares are held by large institutions.
The stock should be watched and considered for a future strategy
I rate their stock neutral. The rally expected this week over certain news events, not related to the company, may see Neptune’s stock price go back up. Their fundamental and technical metrics do not allow for any strategy or prediction of price growth. I think we should continue to watch Neptune’s future earnings reports and stock price performance closely. Although I offer no investment strategy for Neptune, I do hold a small number of shares, just in case there are future rallies. It may be the case that the current price is perfect for entry, assuming it stabilizes higher and begins a genuine uptrend.
Moderate to Low Risk
Although the global and American cannabis industries are uncertain, Neptune’s business in Canada and America are not under any kind of danger with regards to market conditions. Their different products are in high demand and their business strategy is set to gain from the market conditions. The company possesses the capital and potential capital to continue to realize their business vision and strategy. Their CEO was recently recognized by The Healthcare Technology Report as one of the top 25 CEOs in Biotech. Investment in the company is a low risk. A sound options or buy and hold strategy requires a few more buy signals to lessen the risk.
Conclusion
Neptune Wellness Solutions is operating at a net loss and a decrease in revenues. Their financial statements reveal a loss due to the pandemic and issues with their business strategy pivot. The company is in a period of recovery and have brought their new strategy to market. They have new brands, new markets, and global reach. Their main two markets, Canada and America, are bringing in revenue. Their new strategy is firmly in place and we await the results of new revenues and lower operating costs. The stock and company should be watched for future results.
