Last week, Namaste Technologies Inc. (TSXV: N) (FRANKFURT: M5BQ) (OTCMKTS: NXTTF) reported first quarter financial results that showed positive improvements when compared to the same period last year. At current levels, we find the valuation to be compelling and believe that our readers need to be aware of the opportunity.
Reports Strong Revenue Growth and Lower Expenses
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 $105 million market capitalization. This means the company is trading at a little more 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%.
Namaste has Several Potential Growth Catalysts
One of the primary potential growth drivers relates to the relationships that Namaste has formed with leading Canadian Licensed Producers (LPs) for its CannMart.com medical platform. Some of the high-profile partners include Auxly Cannabis Group (XLY.V) (CBWTF), HEXO Corp (HEXO.TO) (HEXO), and The Green Organic Dutchman Holdings (TGOD.TO) (TGODF).
A common theme between these cannabis operators (especially Auxly and HEXO) is related to the cannabis 2.0 market. Auxly and HEXO have been major beneficiaries of the cannabis 2.0 trend and we are favorable to the relationship that Namaste has with them. Over the coming quarters, if Namaste enters into additional relationships with high-profile Canadian LPs through CannMart, we would be bullish with the growth prospects that are associated with this.
In addition to forming these relationships for the CannMart.com medical channel, Namaste has also entered into other strategic supply agreements with likes of CannTx Life Sciences Inc., Rilaxe Canna Inc. and Safari Flower Co. These are interesting as not only because their products are to be listed on the cannmart.com medical channel but also they are to be distributed by CannMart to legally mandated provincial monopoly purchasers in various provinces where CannMart retains distribution relationships. CannMart continues to secure relationships with important suppliers and we are favorable on how the online and real world distribution platform is evolving.
Furthermore, Namaste’s recent expansion into the USA through CannMart.com with hemp derived CBD and smoking accessories points at a future, where, if U.S. federal legalization happens and necessary changes are made to banking laws, Namaste could seek to deploy its platform in the USA for cannabis itself. We consider this to be an exciting potential long term catalyst for Namaste and one that our readers should be aware of.
We also look forward to hearing more information from the Company with respect to its nutraceuticals business. We expect Namaste to benefit from such a planned expansion into the nutraceuticals industry and believe the market may not be giving enough consideration as to the potential value that might be created through this venture.
More generally, we are excited about the repositioning to wellness and the new nutraceuticals business for a number of reasons and have highlighted three of the most important ones. First, we expect the expansion to allow Namaste to potentially cross sell regulated products to customers that are already on the CannMart platform. Second, the consumer has a similar psychographic and demographic to cannabis consumers. Lastly, the team that is focused on this initiative has a proven track record of success and was previously responsible for the strategic reorientation of Bulletproof 360 Inc.a health and wellness trailblazer where he was able to inform, develop and rapidly scale multiple channels and product categories to successful revenues.
A Turnaround Story that is Trading for a Discount
We believe that the management team is focused on capitalizing on high-growth verticals and are favorable on how the business has and continues to evolve. We consider Namaste to be a turnaround story and are favorable on its trajectory.
Underpinning Namaste today is the strength of its management team and strong financial position with no debt – both of which are key pillars we are favorable towards. We expect a stronger balance sheet to play an important role in how the business continues to advance and believe that Namaste will be able to execute from a position of strength.
Namaste is starting to ramp up revenues and we expect this trend to become more significant in future quarters. By focusing on controlling costs, the management team has been able to grow more efficiently and we expect to see additional high-profile brands form an agreement to be sold on the CannMart platform.
At current levels, we believe that Namaste looks attractive on key profitability and liquidity metrics. We believe the market is discounting the growth prospects significantly differentiated from all other listed LPs and will be monitoring how the story advances from here.
If you are interested in learning more about Namaste’s growth strategy, please send an email to firstname.lastname@example.org with the subject “Namaste” to be added to our distribution list.
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 USD$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, providing public dissemination of favorable Information.
This press release may include predictions, estimates or other information that might be considered forward-looking within the meaning of applicable securities laws, including statements related to the Company’s ability to support its continued growth and fund the business’ sales and financial goals for at least the remainder of fiscal 2021 with proceeds remaining from its recent offering. While these forward-looking statements represent the Company’s current judgments, they are subject to risks and uncertainties that could cause actual results to differ materially, including risks and uncertainties associated with market conditions. You are cautioned not to place undue reliance on these forward-looking statements, which reflect the opinions of the Company’s management only as of the date of this release. Please keep in mind that the Company is not obligating itself to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. When used herein, words such as: “potential,” “expect”, “look forward,” “believe,” “dedicated,” “building,” or variations of such words and similar expressions are intended to identify forward-looking statements.