Cannabis 2.0 is becoming a main topic of discussion when it comes to the Canadian cannabis industry and this is an opportunity that we are excited about. The evolvement and advancement of the Canadian cannabis industry will be crucial when it comes to the performance of companies and we have been highly focused on this emerging opportunity.
One company that is well positioned to capitalize on this trend is Namaste Technologies Inc. (TSXV: N) (FRANKFURT: M5BQ) (OTCMKTS: NXTTF) and this is an opportunity to be aware of. During the last month, the company has reported significant developments as it relates to the cannabis 2.0 opportunity and believe that the business is well positioned for growth.
Following these significant developments (which are highlighted later in the article), we decided to issue an update on the opportunity and will be closely following Namaste on a going forward basis. We believe that the company has been able to de-risk the operation by forming relationships with leading brands and strategic partners. Going into 2020, selectivity will be more important than ever, and Namaste has a strong balance sheet and significant growth prospects. The market does not seem to be taking this aspect of the story into account and find this to be significant.
Forming Strategic Partnerships with Leading Brands
Last week, Namaste improved its leverage to the cannabis 2.0 opportunity in Canada after its majority owned subsidiary, CannMart Labs, reported to have entered into an exclusive licensing agreement with Phyto Extractions. The agreement grants CannMart Labs with an exclusive license to use Phyto trademarks on certain cannabis products such as cannabis vaporizing pen cartridges and batteries; cannabis capsules; and cannabis tincture bottles and jars.
Namaste is adding Phyto’s product line to its CannMart online marketplace as it continues to focus on aggressively expanding its online product offering. CannMart’s online store offers one of the largest selections of legal cannabis products from established cannabis producers in Canada and around the world. In a few weeks, Phyto products are expected to be available for sale on the platform and we will monitor how the companies are able to execute on this.
Phyto Extractions is an established brand name in the Canadian cannabis market and has a large customer base. We are favorable on the expertise that Phyto brings to the relationship and expect the companies to find significant synergies between each other. Namaste is highly focused on forming relationships with proven brands to capitalize on the cannabis derivative product opportunity. We are favorable on the strategy and believe that Phyto represents a significant addition to the CannMart platform.
A few weeks ago, CannMart entered into a licensing and manufacturing agreement with TREC Brands. When it comes to the relationship with TREC, the companies will be focused on bringing high quality products to TREC’s brand conscious customer base under the WINK cannabis brand.
CannMart is introducing WINK Cannabis dried flower products into Saskatchewan with additional products and markets in the near future. The companies will be introducing premium cannabis brands in provinces across Canada and we are bullish on the growth prospects associated with this strategy. We expect these products to generate significant traction for the CannMart platform and will monitor how the products are received by the market. CannMart has strong distribution across Canada and this will play an important role in the success of the brands that it has formed relationships with.
Going forward, Namaste expects the relationships with brands like Phyto and TREC to serve as catalysts for growth and drive future sales with existing and new customers. We believe that the management team has had its finger on the pulse of the Canadian cannabis market and are favorable on the verticals that the business is levered to.
A few months ago, CannMart reported to have received approval from Health Canada for an amendment to its license allowing it to offer cannabis oil concentrates on its online marketplace. We expect to see strong demand for these high-margin cannabis products, and this is a vertical that we have been very bullish on. The amendment allows CannMart to offer cannabis oils to its registered medical patients immediately and we expect this to prove to be a catalyst for growth.
Deloitte recently estimated that the Canadian edibles and alternative cannabis products market could be worth up to C$2.7 billion annually. The amendment will also allow CannMart to capitalize on this opportunity and we believe that this aspect of the story is underappreciated by the street. We expect 2020 to be a transformational year for CannMart and we are bullish on this aspect of the business.
Through CannMart, Namaste is positioned to capitalize on cannabis 2.0 in Canada and believe that the opportunity is flying under the radar. One of the most important aspects of the Namaste opportunity is related to the management team. Earlier this year, Meni Morim was appointed as the new CEO and he has played a key role in the success of CannMart. The new management team has done a fantastic job at driving the business forward and this is an important aspect of the story.
Another important aspect of the story is related to the strength of the balance sheet. As of August 31st, Namaste reported to have more than $49 million of cash on the balance sheet and is well positioned to take advantage of organic and inorganic growth opportunities. We believe that the management team has done a great job when it comes to controlling cost and ramping revenues. Going forward, we expect to see the business benefit from the strength of the cash position, and this is something to be aware of.
At current levels, Namaste is trading at a considerable discount to its peers and this is an opportunity to be watching. At these levels, Namaste is trading at 2x cash (as of August 31s) and find this to be significant when analyzing the risk-reward opportunity.
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Published at Fri, 20 Dec 2019 12:46:25 +0000