Namaste Technologies (TSXV: N, N.WT OTCMKTS: NXTTF) investors have had quite the rollercoaster ride as of late. A day following our release last week, Citron Research took aim at the company last week, mirroring several points we have addressed previously on the company. That however, did not deter investors from providing a small temporary rally to the equity from its previous price point. It closed last week down $0.47 overall, or -18.36%.
Within our last article, we identified the unlikely prospect of Namaste listing on the Nasdaq stock exchange in the near future largely due to current pricing on the equity. We also identified that there were some other concerns we had discovered within the latest releases from the company. Our next concern on the list, is recent transactions that occurred in the firms latest expansion focus: Europe.
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Namaste’s Expensive Acquisition
On September 13, 2018, Namaste announced that it had signed a binding term sheet to acquire a UK based company. Known as AF Trading Ltd, and operating under the banner of Access Fulfillment, the firm is a distribution and wholesaling focused organization. It reportedly owns a 30,000 square foot warehouse, from which it is licensed to distribute pharmaceutical products. The stated intention of the acquisition is to transform AF Trading Ltd into a UK based CannMart of sorts.
The purchase, to be conducted through Namaste’s subsidiary Namaste Bahama’s Inc, is valued at a total of $5,000,000. This sum will be paid 50% in cash, with the remaining being paid out in Namaste stock. Upon completion of the transaction, the current directors of AF Trading will be under contract for the purpose of operations and business development. The firm will then be transformed into the exclusive distributor for Namaste’s CBD and cannabis products in the United Kingdom.
The issue at hand for this acquisition, is the estimated value of the firm being acquired. Based on documents filed in the United Kingdom on November 28, 2017, AF Trading had a total asset value of $437,493 as of November 30, 2016. Of this total figure, $194,275 was in the form of cash. Although from a period that is now close to two years old, the latest data for 2017 is not expected to be released under November 29, 2018 which will give us a better basis to make estimates off of.
Further to that, it is suspected that Namaste may be close to it’s only business. Within the release, Namaste stated “Namaste has been selling cannabis ancillary products in the UK for over 4 years and maintains a database of over 500,000 consumers during which period Access Fulfillment has undertaken all distribution of cannabis vaporizers and accessories on behalf of Namaste. Through the acquisition, Namaste anticipates a significant reduction of its costs as related to fulfillment of its vaporizer and accessories in the UK and EU markets.”
Given the paltry figures stated for the company in the latest filing, it is difficult to justify the ‘significant reduction’ that may take place, considering a figure twelve times the value of the firms assets was paid.
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In addition to the apparent lack of value in the firm, there’s the question of the value of an MHRA approved distributor license. Many investors will quickly point to this license as being the justification for the price paid within the acquisition. Such a license though is valued based on the scarcity – much like that of a licensed producer designation in the Canadian ACMPR process.
As the amount of licenses increases, the value of said license inherently decreases. Unfortunately for AF Trading, a total of 2,137 licenses exist in the United Kingdom, with a further 8,543 existing within mainland Europe. Thus, the value of such a license can be pegged at little more than the £3,157 (C$5,375) application and £1,936 (C$3,296) inspection fees.
Further to this point, this license is not the only license required should Namaste intend to handle cannabis with this entity. In addition to the MHRA distributor license, AF Trading will also require a Controlled Drug License, which comes from the governing body known as the Home Office. This licensing will take a period of up to 16 weeks, which is only upon the application being submitted. Before this can occur, enhanced security checks are required for all employees of the firm which can take up to sixty days in some cases.
As of the time of writing, Namaste Technologies has three days remaining to sign definitive documents for the transaction.
Information for this briefing was found via Gov.uk, Sedar, TMX Money, Newswire, Access Fulfillment, and Namaste Technologies. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
