AGORACOM Small-cap Investor Relations Blog

When industries start out, there is a window of opportunity for forward-thinking companies to become the axle from which all the spokes connect – to become the nexus of the sector. When Google stepped into the fray back in 1997, Google founders understood the underlying power of a truly dynamic search engine and how it could actually help shape the World Wide Web through analytics. As a result, two PhD students went from a good idea and a vision, to a corporate monolith, now known as Alphabet, with over 61,000 employees, a quarterly revenue of US$21.5 billion in Q2 2016 and since the start of the year, America’s most valuable company twice in three months, beating out Apple both times.

If we draw a parallel to the rapidly emerging medical and recreational marijuana sectors, it is 1997 all over again, and there is another company coming onto the field with a similar vision of pulling together a nascent legalized cannabis sector, that according to a 2014 report by Greenwave Advisors, is expected to surpass the NFL by 2020 with over $35.0 billion in revenues in America alone and this is a base figure. We are at the end of another prohibition and Namaste Technologies (CSE: N, Forum), headed by a like pair of young visionaries, intends to become the tie that binds in a high growth industry with plenty of blue sky.

Walk down a commercial street in Vancouver and you’re probably going to find a shop selling herbs or smoking/vaping accessories. Just like you would in Denver, Seattle, Portland, Nome and Washington, DC. Unfortunately, as this list continues to grow, it’s a mom-and-pop free-for-all when it comes to the sale of accessories, leaving many imbibers with shoddy product and bad advice. Namaste is leveraging regulatory, health and technology factors such as decriminalization and destigmatisation of cannabis products to grow its integrated technology-driven business model spanning e-commerce and wholesale marketing, logistics, customer service and research and development.
Of course, every company selling vapes, drops that line, but Namaste has prided itself on the company’s integrity as President and CEO, Sean Dollinger, explained, “When Kory and I started this, there was this product called the Pinnacle Pro. There was a lot of defects with it, but it was the hottest seller out there. We had just started and we were the first ones to come out – the Muddy Waters of the vaporizer industry – and we actually gave a warrant notice on it. We got a tremendous amount of backlash on that, but at the end of the day, that was the start of why Namaste is the most trusted vaporizer site in the world now.”

When he said “world”, he wasn’t kidding. Namaste currently sells in 20 countries with just over 50% of its business coming out of Europe. Yes, you heard me, the company is revenue generating on a global scale and as of July, 2016, had a run rate of over $8.0 million and a 6% monthly organic growth rate. This leads us to the next part of the “Alphabet” strategy; inorganic growth through acquisition. On July 18^th of this year, the company announced that it had closed its acquisition of Vaporseller, an e-commerce portal for the sales of vaporizers and accessories. The deal added an unaudited revenue base of US$3.4 million to Namaste’s topline. That’s an impressive 142% increase in revenue run rate. The transaction also netted over 150,000 names for Namaste’s customer list while adding new marketplace relationships and providing an entrance into the lucrative American market. Then there’s that little thing about a full product catalog of vapes, tanks, mods and accessories. You can see where this is heading, right?

Google’s road to “Alphabet” was made possible by its ability to outmaneuver Yahoo and move with the times. Similarly, since Namaste’s inception, it has moved lithely with the digital age as company CFO, Darren Collins, explained, “Historically from founding of the business to where we are today, there’s certainly been a lot of milestones. From an operations perspective, it’s been streamlining the business to get the right systems and right infrastructure in place to really manage and scale the business. That means working with groups like Linnworks and Shopify, a great Canadian company.”

Namaste was also busy getting their distribution centres set up in the UK, the US, Brazil and Australia, then building teams to support these new regions. While this was going on, the company moved to build the solid base of board with lifetime veteran of corporate and project finance, Sidney Himmel, as Chairman. Sitting as Independent Directors are: Peter Simeon, expert in corporate commercial and securities law and partner at Gowling WLG, as well as Sefi Dollinger, serial entrepreneur with over two decades of experience, and specializations in sales management, new business development and contract negotiation.

The founding management team of Sean Dollinger and Kory Zelickson as COO, combines over 15 years’ expertise in online marketing and over 12 years’ experience in designing, developing, and manufacturing new products. Together this dynamic duo has done over $350 million of online sales. Then the addition of Darren Collins, who has over 10 years of corporate and project finance experience and has been involved in over $1.0 billion worth of transactions. You could safely say this is a power trio.

When it comes to finances, Namaste has also had a transformative year. The company raised its first external financing for gross proceeds of approximately $1.3 million and of course, the company went public to tap into and consolidate a fragmented market. Collins added, “It’s a high-growth market and we now have a public markets currency, and a good pipeline of additional opportunities. I think it bodes well that we were able to close our first acquisition of Vaporseller right out of the gate.”

I believe I said something about products a while back. Namaste is also a manufacturer with its leading-edge premium vape, The Grizzly Guru. The Grizzly Guru is basically the top-end Swiss Army Knife of the vaporizer world. If you have herb, if you have oils or wax concentrates or even e-liquid cartridges, you can use the Grizzly Guru without worry. It isn’t hard on the pocket book either at $195. Don’t let the price fool you, it beat the pants off of the $400 Mighty vaporizer when it came to features. Oh yeah, the Guru has a 70% profit margin. So the customer smiles and the shareholder celebrates.

Dollinger’s marketing prowess taps into multiple demographics and increases traffic and conversions by employing key ad space on site to showcase Namaste Vaporizers, for the 18-44 age group with product reviews by Kory Zelickson, Vape Gossip, for the female demographic with Chelsea product reviews, Green Vapes, for the baby boomers with product reviews by Marc Mulvany and last but not least, Groovy Vapes for the 18-30 gamer.

As with any successful online operation, social media plays an important part. Namaste is crafting its own social experience that will combine the act of trading vaporizers with ecommerce portals to increase commercial traffic and recurring revenue while building tightly knit communities of like-minded individuals. Talk about sticky.

Collins went on to explain what investors have to look forward to, “We have some e-commerce developments that we will be sharing with the market. Some of the things we’ve really been focused on have been increasing our domain authority, increasing our traffic and increasing the quality of our platform. I think we’ve made some real progress there that we will be sharing with the market as well. We also have exclusivities we are working on with manufacturers. Manufacturers are looking for groups to take them international in many cases, so we look to exclusivities on specific jurisdictions with some well-known manufacturers.”

Collins quickly added, “Just for reference, the largest company in the space is called VapeWorld. This company does about US$85.0 million worth of run rate revenue. The cornerstone of how that company was built was through an exclusivity on a product called, Pax. That product is the best-selling vaporizer in the world. So that really transformed the business into a market leader.”
Namaste will also work to develop more relationships with distributors and LPs here in Canada, as well as develop international partnerships with groups looking to expand into hardware distribution. Investors and the public can also look forward to a series of new products being released under Namaste’s Grizzly Originals brand over the coming months.

So how is Namaste going to fuel this push? What are books like and how are they going to be over the next 12 months? Okay, we know they’re generating revenue. That means the core business is working. This past year was full of one-time expenses to do with publicly listing and the Vaporseller acquisition. That said, Collins didn’t think fiscal 2016 would show a profit for the company, but the company would only need to raise money to increase inventory and since the cash cycle is nearly instantaneous, Namaste wouldn’t have to sit on that extra investment for long.

Basically as Namaste moves ahead, it will be a triple threat dealing in e-commerce, manufacturing and wholesale with margins that would make your mouth water. If the company is able to continue its present momentum and stick to its innovative vision, we may very well see Namaste launch its own umbrella company to keep up with its business. Even leaving the blue sky prospect aside, the company will probably do over $10.0 million run rate revenue in the near term and its market cap is $7.44 million. I think the math speaks for itself. Investors would be wise to keep this on their radar, but don’t take my word for it, however. As always, do your due diligence before making any investment decision.

–Gaalen Engen
http://twitter.com/gaalenengen

FULL DISCLOSURE: Namaste Technologies is a Stockhouse Publishing client.
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