Namaste ($N) was a Cannalyst favorite for quite awhile. Certainly not to invest in (natch), but to myself….as a ‘fascination’. The CEO through most of the early days (Sean Dollinger) was deploying an ‘interesting’ business plan (you can find the long form here). They’ve since run him off, and brought in a new guy (CEO Meni Morim) who laid it all out in their last fiscal year end.
Morim said some big words in that mea culpa, referring to Namaste’s “deep, holistic self-audit”.
Like Heritage Cannabis ($CANN) and Zenabis ($ZENA), $N has provided great examples of a dashboard warning light coming on.
Today, Namaste provides another, levelling up by pivoting into an entirely different sector. I differentiate this from companies simply declaring themselves a ‘CPG’ company. That’s what they’ve always been. Saying it out loud just means they finally recognized it. Or perhaps the marketing guys said it was time. Either or.
Currently, CEO Morim isn’t comfortable with how his existing (renewed) business is faring. My last Structure on Namaste noted some improvement. I didn’t follow up, because the subsequent quarter was virtually identical: sales across all segments flat, and still sporting a 9% margin.
The financials also reveal that $N burned through $7MM in cash over the period. They’re now at $13MM. And that’s as of August 2020.
Companies who aren’t attractive enough for M&A activity will seek other ways to re-jig a terminal business model. In the case of $N, that (dwindling) cash balance is the only thing they really have (had). Thus, they’ll be out of the dating pool unless a ‘Brad Pitt’ or a ‘Megan Fox’ shows up at their door (Ummm….I’ve got exactly the same chance of that happening).
<The interested reader might want to look at 48North regarding use of cash. They had some ($36MM as of Dec 31, 2019)….and now they don’t ($2.2MM as of Sept 30, 2020)>
Today’s press release from Namaste announces their “….evolution (in)to a Wellness Company with Expansion into Nutraceuticals Market”. Well then. How’d they come up with that?
Look for lost executives going back to their ‘roots’ for inspiration. The guy $N has tapped to head the new ‘nutraceutical division’ (Jamal Faraaz) came from BulletProof 360, a company most notable for selling ‘butter infused coffee’….and levering off of a keto diet book.
Faraaz has been at $N since at least late 2019, and he ain’t a product guy either. Related, CEO Morim had jettisoned Choklat (a food maker) from $N’s orbit, and severed all affiliations with them last June in a pretty inelegant separation.
So. The guy that’s about to head a startup division….in a different sector, with no products, no known ability to create any, with a primary skillset in data strategies….is going to do this using a very finite amount of capital.
Regarding BulletProof 360: they’ve been to capital markets at least
3 5 times, flopped on an IPO twice, has put itself up for sale, yet recently did close a $13MM offering. The takeaway? Despite Bulletproof boasting $100MM in sales, they couldn’t make a dime. This valued reader…is what success in the larger mature wellness sector presents to me: intense competition on a hand-to-hand battlefield for margin.
Anyhow, watch for other companies to do the same Level 2 pivots, with far more subtlety. Namaste’s announcement is pure ‘big bang’. We’ve seen other lesser ‘pivots’ in the cannabis space…..some being lateral (from hopeful cultivator to extractor), or across segments (like medical to recreational), or even products (like whole flower to pre-roll). Except for the ‘lateral’ example, there’s no real ‘pivot’.
In last spring’s mea culpa….Namaste CEO Morim laid it all down. He said:
Given this new announcement, that last sentence reveals how well the efforts have gone. Morim’s seen 5 more months of operations as well…..it doesn’t appear that the changes he’s made has achieved much in terms of survival (at least in current form).
In today’s announcement, Morim takes the pivot’s ideals and pitch to their logical end….increasing the ‘total addressable market’:
“Make no mistake, cannabis will continue to be a strong and important part of our portfolio…….We are now looking to expand our product offering, increase our total addressable market by adding more wellness products to the platform. These include nutraceuticals and potentially, psychedelics”.
Yep. If you see an investment or company you’re thinking about playing around like this….run fast. And keep a very close eye on how it’s described. Some CEO’s are amazing at polishing brass. Unlike Meni Morim.
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