Shares have risen by more than 50% since that call, fueled by the rapid inflow of capital into the cannabis sector. Indeed, a rising tide lifts all boats.
With nearly every cannabis stock up big since 2019 began, many investors are searching for companies that have been left out of the race. Down 40% on the year, many bargain shoppers are sniffing around Namaste Technologies Inc (TSXV:N) stock.
Is Namaste a hidden value in a red-hot industry? Let’s compare it to Hexo Corp to find out.
Here’s the big difference
Namaste Technologies doesn’t grow marijuana. Nearly every other pot stock does.
For example, Hexo just opened its 1,000,000-square-foot growing facility. Production should slowly ramp this quarter, ideally reaching full capacity by the end of 2019. With licenses and purchasing agreements with many of Canada’s provinces, Hexo has a clear path to grow revenues and cash flow quickly.
Namaste is in no such position given that it’s basically an e-commerce business that sells hardware and accessories like vaporizers. It also has a nascent telemedicine app which aims to serve medical marijuana patients.
According to a Motley Fool exclusive, the app provides “a free virtual consultation with a licensed health-care professional to obtain a prescription for medical cannabis. From there, NamasteMD then gives patients several options to fill their prescription and buy medical cannabis.”
Hardware and software for the burgeoning marijuana industry could still result in big business, but it’s critical to note Namaste’s strategic differences.
What’s not to like?
Namaste has already secured nearly a dozen medical cannabis providers as clients. One of its most recent deals gave it leading sales access to the 1.5 million strong indigenous population. Management wants to hit 200,000 patients by the end of this year.
How do these developments lead to a 40% drop in share price?
With a market capitalization just over $200 million, Namaste is now one of the smallest cannabis stocks left on the market. Unfortunately, it probably deserves this valuation.
In October, short-seller Citron Research release a damning report that called Namaste a “complete fraud.” The research organization essentially accused Namaste’s CEO of a pump-and-dump scheme, saying it made a “fake claim of a Nasdaq Inc listing to get investors to buy the stock.”
A few months later, following an investigation, Namaste’s board of directors fired the CEO in question.
This stock is a mess
At this point, it’s difficult to sort out fact from truth for Namaste.
In February, its board of directors revealed that it would “consider all value-maximizing alternatives” to the company’s future. Most investors took that as a signal that Namaste would attempt selling itself completely, a difficult pill to swallow give its rock-bottom valuation following the executive scandal.
Either way, this is not the pot stock you want to buy. While shares of Hexo give you a de-risked way to directly profit from rising cannabis sales, Namaste is a significantly more complex story. All that it has at this point is an association with the cannabis industry—that’s not enough to earn my investment.