N Business Model Built To Weather The Storm 2020 has proven to be a challenging period for the cannabis industry so far and we will continue to keep an eye on how the sector is able to perform from here. Although the recent trend has been to the downside, we have been able to identify a few bright spots in the industry and believe that selectivity will be more important than ever going forward.
When we are analyzing a cannabis company, there are a number of metrics that we take an in-depth look at and want to highlight some of the most important metrics:
- Balance Sheet Strength: Access to capital has become a major pain point for the sector and we are focused on companies that have enough cash on the balance sheet in order to execute
- Cash Flow: Aside from having cash on the balance sheet, we are focused on companies that are generating significant cash flow. We are primarily looking for businesses that are operating profitably and have a large total addressable market
- Management Team: This is the most important aspect of any cannabis company. We work to identify companies that are led by a management team that is focused on creating value for shareholders. We prefer well rounded teams that have proven track records of success
During the last year, the cannabis sector has been under immense pressure and this is a trend that our readers need to be aware of. Although this trend has shown no signs of changing, we believe the sector is reaching an inflection point as new markets come on-line and as Canada’s market appears to be gaining traction. Today, we want to highlight 3 Canadian cannabis companies that have come across our radar and are worth taking a look at.
Namaste Technologies: Continues to be an Execution Story
Namaste Technologies (N.V) (NXTTF) is well positioned to be a beneficiary of the changing landscape of the Canadian cannabis industry and possesses many of the traits that we consider integral to the overall success of a company in this industry. During the last year, the fundamental story recorded several major advancements and we are impressed with how the management team has been able to drive the story forward.
When compared to the average Canadian cannabis company, Namaste represents an attractive opportunity from a balance sheet strength and valuation standpoint. During the last few quarters, the company has been expanding its sales channels and we believe that the management team is focused on bringing the business down a path to profitability. From a cash flow standpoint, we are favorable on this aspect of the operation and expect this metric to be a key focus point that is commonly associated with the opportunity.
Namaste has an attractive operating structure and we are most excited about the growth profile that is associated with CannMart, a wholly owned subsidiary of the company. CannMart has played a key role in the success of the business and we expect it to become a more significant aspect of the business as Namaste continues to execute on previously announced initiatives. Canada’s cannabis 2.0 opportunity represents an attractive vertical of the industry and is a market that CannMart has been highly focused on.
When it comes to analyzing a cannabis company, we have a tendency to prefer businesses that represent differentiated opportunities. Namaste’s business model does not require the construction of massive cultivation facilities and we find this to be significant when it comes to managing cash flow. The company’s business is much less capital intensive than Aurora Cannabis (ACB.TO) (ACB) and we are favorable on this aspect of the story. Through CannMart, Namaste is positioned to be a major beneficiary of the legal cannabis movements and going forward, we will monitor how it is able to capitalize on emerging international markets.
Namaste has significant potential catalysts for growth, and we are favorable on its risk-reward profile. At current levels, we find the valuation to be attractive and believe that the opportunity is flying under the radar. Over the next year, we expect to see Namaste report major advancements, and this is an opportunity to be watching.
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