Namaste Technologies: Watch those vapor trails!

A few years back we might have had to be coy about the core market of Namaste Technologies Inc (CVE:N, CNSX:N), the e-commerce retailer.

These days, with recent legislative changes (and more on the way) we can come straight out and state the seller of vaporizers and associated paraphernalia is focused on the medical and recreational consumer of cannabis.

Regulatory changes and technological advancements are accelerating growth in the vaporizers and accessories industry, as are health concerns about the old ways of enjoying the weed – what comedian Bob Newhart described as users “sticking burning leaves in their mouths” in his classic routine, ‘Introducing tobacco to civilization’.

Wells Fargo predicts staggering growth over the next five years

The vaping industry as a whole was turning over US$2bn a year in 2014, according to investment bank Wells Fargo, and by 2016 had more than doubled in size.

The bank’s projection is that the market will top a staggering US$20bn a year by 2021.

That sum includes e-cigarettes, which is not Namaste’s target market, but the market is still plenty big enough, and it is growing at a rate that even appears to have caught co-founder and chief executive officer (CEO) Sean Dollinger by surprise.

“We identified vaporizers,” said Dollinger, a serial e-commerce entrepreneur, explaining why he got into the business line.

“We thought we’d sell two or three a day. That quickly turned into a hundred or two hundred a day, and some days now we ship well over five hundred per day around the globe.”

Having acquired the rival Vaporseller.com and everyonedoesit.com sites Dollinger feels the company is equipped to dominate the sector.

Everyonedoesit (and other vaping web sites)

To back this up, he discloses that, at the beginning of 2016, with namastevapes.com (and international variations thereof) as the main ecommerce platform, monthly site visits were around 35,000; by the end of the year they had risen to 576,846 across the whole Namaste platform.

With 26 web sites, a local presence in 20 countries and a customer mailing list of around 300,000, the company is well-placed to hit the accelerator pedal.

It is looking to organically grow base e-commerce revenues by 6% a month, which thanks to the wonders of compound interest means turnover should double each year.

It’s a business with a decent margin – one that should improve as the company exploits the increased buying power it now has following recent acquisitions – and it needs one to make the e-commerce model work.

“It’s a very simple formula once you get it down,” Dollinger said, explaining the e-commerce business model.

“You need to make sure the gross margins are there, and you need an item with a decent size ticket, because it is so expensive to advertise and market,” he explained.

With a top-notch e-commerce platform, a multi-strand marketing approach that allows the company to target different ends of the vaping market, and an experienced management team Namaste has the pieces in place to maintain its leadership in this fast-growing sector.

“Come November this year we expect to be on a run rate of C$2mln a month, and that’s compared with two years ago when we were doing roughly C$150,000 a month,” Dollinger said.

Valued at just C$42mln and yet a leading player in “the quickest growing industry in the world” 

Such rapid growth makes it slightly mystifying why the company is valued so cheaply at C$42mln.

Dollinger explained that the company has had its chance to sell out, but enthused by the opportunities in “the quickest growing industry in the world”, Namaste opted to go public in February 2016.

Recent news flow has been positive, with Namaste this month inking a deal with Canopy Growth Corp (TSE:WEED), a C$1.5bn-valued producer and seller of marijuana in the Canadian medicinal-use market.

The pair will work together to educate Namaste’s Canada-based clients on the clients on the legal, regulated framework for medical cannabis.

Namaste will also support Canopy on the development of Canopy branded vaporizers and accessories.

“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,” Dollinger told investors.

“Going forward, we see multiple opportunities to expand this strategy globally,” he added.

The company also intends to acquire a licensed producer of marijuana in Toronto, which will prove useful in obtaining a distribution license.

The mailing list alone is a goldmine

Dollinger is confident it will only be a matter of time before the market ascribes a more realistic valuation to the company, if only on the strength of its customer database.

“Just to give you an idea, licensed cannabis producers in Canada are buying verified email addresses at C$300 per email. On a given day, Namaste collects 1,000 email [addresses] a day around the globe, so if you start doing the ‘quick and dirty’ on that, you can see the value of our database.

Dollinger also cites the example of chewy.com, an e-retailer of premium pet food founded by Ryan Cohen, who just happens to have started three dot.com ventures in the past with Dollinger.

“He just sold his one web site for $3.3bn in the largest e-commerce deal of all time,” Dollinger noted, adding that Namaste largely follows the same e-commerce formula to chewy.com.

“That was in dog food, the most competitive business in the world. Why would people choose that site over Amazon?

“It comes down to a few things: you’ve got to be obsessed with the company; number two, you’ve got to offer the best customer services you possibly can, because people call Amazon for vaporizers – you’re not gonna get any support.

“Number three, you’ve got to have an amazing range of products. That’s what we’re doing.”

Dollinger concedes that there are more dogs in North America than cannabis users but with the speed at which the legalised market is growing, he is confident he can grow Namaste “in the exact same way” as Chewy.com.

Story by ProactiveInvestors