This Canadian company gets most of its revenue—and earnings—from the sale of vaporizers to cannabis users, but it now aims to become a one-stop online shop for those consumers.
The company will use its websites to connect marijuana producers with users and at the same time sell them the paraphernalia they need. Still, with the legalization of recreational pot and a growing number of websites hawking marijuana, its outlook is uncertain.
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NAMASTE TECHNOLOGIES, $2.36, symbol N on the Toronto Venture Exchange (Shares outstanding: 275.2 million; Market cap: $600.3 million; TSI Cannabis Quality Rating (CQR): ; www.namastetechnologies.com), is a Toronto-based e-commerce business that sells vaporizers and other cannabis accessories. It owns 30 websites, under various brands, in over 20 countries.
The company has expanded in the vaporizer business through a number of acquisitions. Vaporizing, also known as vaping, refers to the conversion of a substance from a solid or liquid state into gas by the application of heat. As it relates to medical cannabis, vaping entails the use of convection or conduction heating methods to safely bring dried cannabis to an optimal temperature (not high enough to cause combustion). It then releases cannabis compounds in the form of a vapour. Vaping cannabis is perceived to be a cleaner, safer and less-harmful alternative to smoking marijuana.
In July 2016, Namaste Technologies paid $2.9 million for VaporSeller, an e-commerce platform selling vaporizers in the U.S. In October 2016, the company paid $7.1 million for URT1, which included the EDIT brand of smoking accessories and websites. In March 2017, it acquired Australian Vaporizers Pty Ltd. for $5.8 million. That gave Namaste what it believes is roughly 90% of the online retail vaporizer market in Australia.
Currently, 31.8% of the company’s revenue comes from Australia, 28.8% from Great Britain, 14.0% from Canada, 9.4% from Brazil, and 4.9% from Germany.
In response to the global trend to legalize cannabis for both medical and recreational use, Namaste now aims to supplement its existing e-commerce business with the sale of medical marijuana.
In April 2017, the company paid $3.6 million for CannMart Inc., a retail distributor of medical cannabis in Canada. Through CannMart, Namaste hopes to create an e-commerce platform that simply facilitates transactions between the buyer and the seller. It would not take actual possession of the medical marijuana, but instead take a percentage of sales revenue from transactions on the website. The company would also cross-sell its high-profit-margin accessories. At this time, CannMart relies on medical cannabis sales. But that could change with Canada’s legalization of recreational cannabis use.
To complement CannMart, and to facilitate quick and easy access to prescriptions, Namaste has also developed a software application named NamasteMD. This product aims to provide patients with video access to nurse practitioners for the purpose of acquiring a prescription for medical cannabis. NamasteMD patients will then be given the opportunity to order medical cannabis and accessories through CannMart.
In May 2018, Namaste Technologies acquired Findify AB, an e-commerce business based in Sweden, for $2 million U.S. plus 7.1 million Namaste shares. Findify hopes to use artificial intelligence algorithms to optimize and personalize a consumer’s online buying experience.
As part of this, the company has launched an app—My Uppy Cannabis Journal. Namaste says the app has already been downloaded over 18,000 times. The purpose of My Uppy is to collect user feedback related to the use and effects of various strains of cannabis. This will provide data to feed Findify’s AI algorithms. Patients can then select specific strains based on their medical conditions and previous use. This data will then be integrated with the CannMart.com website.
In the three months ended May 31, 2018, Namaste’s revenue rose 31.4%, to $4.1 million from $3.1 million a year earlier. About 98.0% of that revenue came from the company’s core business of online vaporizer sales. Only 2% came from CannMart, NamasteMD, and Findify.
The company lost $8.1 million, or $0.03 a share, in the quarter, compared to a loss of $3.3 million, or $0.02 a share, a year earlier. On May 31, 2018, Namaste held cash of $44.0 million. The company recently agreed to sell shares to raise another $45 million.
Namaste aims to become a one-stop shop for both cannabis and accessories. The goal is to do all of that through its websites, and so limit its overhead costs However, the cannabis market may not need a one-stop online shopping portal when producers can inexpensively set up their own e-commerce sites. As well, the market for vaporizers and other paraphernalia will likely attract lots of competition as the number of legal cannabis users expands.
Namaste Technologies has a 2-Leaf Cannabis Quality Rating (CQR). Namaste does not inspire our confidence, and we don’t recommend the stock.
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