Namast has been a punching bag here at TheCannalysts for some time now. Our most recent look at them revisited just some of their follies under former CEO Sean Dollinger, the totality of which saw him forced to turn in the keys to the executive washroom.

I was reminded of the company a few days ago when a lengthy letter to shareholders from current CEO Meni Morim was published. And as press releases go, it’s a gem.

Morim excoriates virtually everything that happened prior to assuming his role. From “letting go of distractions” not aligned with their future, to starting “a rebuild from the ground up”….we find out that he initiated a “deep, holistic self-audit” at the company to find out what they want to be when they grow up.

He doesn’t mince words. I encourage you to read it, inasmuch as you won’t see pressers like this very often. There’s an old saying: “one doesn’t air dirty laundry in public”. In this case, Morim obviously didn’t give a fuck.

I agree with most everything he said about the past. To paraphrase (there’s a ton to unpack there): Namaste was a directionless outfit that lacked vision, requiring sweeping changes to management and the board…..and packing a bunch of nonsensical, uneconomic deals. Well then.

Sadly though, that’s about all we get. His flagellation of the company is all about the past. But as to the future (the important bit to shareholders), there isn’t much to grab on to. There is a reference to having a ‘focus (on) meaningful long-term success’. A mention of Namast deciding where they should be in the value chain. A declaration of ‘expertise in e-commerce, production, packaging, and distribution’. And a strong hint at moving beyond selling dope.

Ummm, great. But also pretty airy.

Apparently, all they need is 2 quarters, and they’ll be seeing cash physically walking into their office and laying down and stacking itself on desks.

Let’s have a look at their 2019 fiscal year….. the year described by Morim as ‘ground-zero’ for Namast…. filled with ‘costly and distracting’ effort in cleaning up the shit-show he inherited

To the financials!

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• Cash down to $38MM. Still a fair chunk though.
• Took a $1.2MM provision on $2.8MM of cannabis inventory. Their sales throughput stuck them with a lot of aged product.
• Sales flat to down across all segments to $4.1MM in this quarter.
• Goodwill impairments of $14.6MM in the quarter. More below. Good disclosure around the mechanics in Note 12 as well.
• We see the Pineapple Express’ deal in full now, where $N bought 49% of it for $4.1MM. It came with only $370k in net assets, the rest to goodwill. Which, in tandem with Pineapple’s operations losing $2.4MM on $400k of revenue over the year, the goodwill – along with the entire investment- was written down to zero in the quarter.
• We also know they sold some (or all) of it to $PUMP. We’ll get to see what they realized for it in either companies’ statements soon, but suffice it to say any dollar amount above zero will show a gain on sale.
• Spoke too soon. $N wrote off a $1.4MM Note Receivable to Pineapple – apparently a loan for working capital shortly after buying their stake in it. Woof, woof. That dog didn’t hunt, and it wasn’t ‘playing’ dead.
• PP&E a measly $2MM, the bulk of its’ $500k growth during 2019 was in computer equipment. More than half the total of all PP&E is in leasehold improvements.
• More impairments, this time $1.6MM in “computer software no longer commercially feasible”. Ouch. Machine learning AI would be a guess. More on that below too.

Ok. I’m getting a headache.

So, a $63MM loss during the year, on $16MM in revenue. That’s a gut punch, no bones about it.

It’s no wonder they’re down playing cannabis sales. They did less than $400k in sales during the quarter through CannMart, and here we see some of the ‘costly and distracting’ things Morim was talking about in the press release. Between the 3rd and 4th quarters, an incremental $4MM was attached to CannMart’s yearly loss compared to previous quarter. It’ll be interesting to see what/if their operating state is post reorganization:

The reader should also note that aside from the impairments taken, that the Namaste Vape segment lost $5MM while operating, and that the Aussie one is barely above break even. Given that’s their core business model, that’s not good.

Most of the impairments were in Goodwill, which, they took lumps from in the core business of vaporizer sales. Not a good look at all so early in. I’ve never had a positive view towards drop shipping as a large scale business model of any seriousness. That $N was able to get to a $3 share price and capital raises they did speaks to the ‘irrational exuberance’ that the cannabis sector generated during the early days of yesteryear:

Careful reading of these financials reveal that the impairments in the vape divisions was entirely from the Findify acquisition ($14MM purchase price, $12MM was deemed to be Goodwill), and allocated to the business units at some point. I wrote this over two years ago, and it seems relevant to leave it here.

At some point, all of the investments and organizational redesign the new guy is claiming to do presumeably gets done. And that ‘done’ isn’t apparent yet in the financials. All we’ve got at this point is an ask to wait another couple of quarters.

Tracing the cost of changes is challenging. No clear guidance about any of it has been provided, so it’s really in spotting things like the $4MM charge against CannMart, and an $18MM corporate charge in the quarter (up from the $6MM/q they’d been running at previously). This is all aside from impairments.

The lack of specifics doesn’t help to understand where they’re going either. They’ve shut down Brazil (yes, there was a Brazil, which started hot then went into the freezer), and sales in the US have hit a ditch. There is some decent disclosure in their MD&A on sales:

Assuming they’re going to become the promise Morim gives of being a very different company….. perhaps this will be less important. At this juncture, all we’ve got from them is to wait and see.

For an investor, that’s a crappy situation to be in.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $N