Lifeist Wellness Inc V.LFST

RE:seekingalpha Namaste coverage-read comments valuable insight

[yohanlee]

From the article on seeking alpha takeaway points

I spoke with Kory Zelickson, co-founder and Chief Operating Officer of Namaste. 
The Memorandum of Understanding announced on February 21, 2017 with Canopy Growth (TSX: WEED) represents a key strategic opportunity for Namaste (CSE: N). Management is focused on selling vaporizers and accessories over the Internet. But as with many tech businesses, N has a significant “hidden asset” in the form of its data base. So the arrangement with WEED does enhance Namaste’s credibility and it opens up opportunities to market and, perhaps, cross market existing products and even new products.
But it goes beyond the obvious basics. As Sean Dollinger, CEO said, “Our company has successfully built one of the largest and most global client relationship databases in the cannabis industry and we view broadening our strategic alliances to the benefit of our customers and shareholders. Consistent with our strategy to partner with leading companies that hold themselves to the highest standards, Canopy represents the ideal partner for us to roll-out this strategy alongside. Going forward, we see multiple oppor-tunities to expand this strategy globally.” It is the “global client relationship databases” this association with WEED paves the way for developing moving forward.
The company has also made application to the Toronto Stock Exchange Venture ex-change and an announcement to list on the OTCQB was announced February 13, 2017. Management reports they have been cooperating actively with the TSXV and they feel they are closer to the end of the process. Both of these listings will further add to Namaste’s credibility and make access much easier for U.S. investors.

I interpret the news to be better than first thought and continue to like the stock even though it has moved higher.

Two more significant news items from Namaste (CSE: N) today that I discussed with management. These announcements confirm my optimism regarding an investment in N. The shares have settled back from its initial run up because of weakness in the overall market. I think this is an attractive buying opportunity.
First, Namaste announced a definitive agreement to acquire 100% Australian Vaporizers in exchange for cash, common shares and an earn-out payment.
Highlights include: 
• Attractive valuation terms of approximately 1x sales and 5x EBITDA. The acquisition should be immediately accretive to N.
• Australian Vaporizers (AV), founded in 2010 and its website https://bit.ly/2lSzCeB has an approximately 80% share of the Australian market. Australia is one of Namaste’s largest markets and so the overall market share will be higher and the integration of AV should be much easier as it has its own distribution center and technical staff. 
• Australia is legalizing medical marijuana and Canopy Growth (TSX: WEED) has invested in the region.
• The customer database has over 48,000 individuals that have made upwards of 77,000 orders during the lifespan of the company. N’s database will increase to over 300,000 individuals globally. 
• For the period ended June 30, 2016, the company produced approximately $4.5 million of revenue and $1.1 million of EBITDA audited by Grant Thornton Australia. This raises N’s revenue run rate to $18 million.
• AV is EBITDA positive and will contribute to N’s ability to reach profitability during fiscal 2017 (August). 

Transaction terms and conditions are as follows:
• Purchase price of 1.0x 12-month trailing sales of $5.0 million, plus the adjusted value of inventory less all liabilities and plus trade debt and cash. The total purchase price is estimated to be approximately $5.5 million; 
• Consideration of 75% cash on closing, 10% in common shares based on the 20-day volume weighted average price upon signing of definitive agreement and 15% earn-out based on sales and integration milestones; and 
• Subject to regulatory approval. 

Second, Namaste has entered into a $6 million bought deal private placement agreement with Eight Capital and Canaccord Genuity Corp. as co-lead underwriters and including Beacon Securities. The offering is at $.25 per unit with each unit made up of one common share and half a two year warrant with one warrant exerciseable at $.35 per share. Underwriters have an over-allotment option for an additional 3,600,000 units at the same price that would raise an additional $900,000. The ability to negotiate a bought deal reflects well on Namaste because it is reserved by underwriters for their best clients. 
The net proceeds will be used for the acquisition of Australian Vaporizers PTY Limited and for working capital and general corporate purposes.