Shopify – A Threat To Canadian Online Cannabis Retailer Namaste Technologies?

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With less than a month for the legalization of recreational cannabis in Canada to take effect, investors continue to closely watch the pot stocks in the country. Namaste Technologies, (CVE:N), a leading online cannabis accessory retailer, is one of the many cannabis-related stocks that have witnessed a surge in its stock price over the last year in anticipation of the revolutionary move. The company, which currently sells only vaporizers and other accessories for consumption of medical cannabis, plans to enter the recreational cannabis space through its partnerships with various Licensed Producers (LPs) in Canada and abroad. However, some of the key provinces in Canada have recently chosen Shopify as their partner to facilitate online and in-store sales of recreational cannabis. While Shopify is likely to capture a sizable portion of the online cannabis market, we believe that Namaste’s technology and AI-driven platform, coupled with its network of suppliers and range of curated products, should enable it to establish a strong position in the online cannabis (and accessory) space in Canada and across the globe.

We currently have a price estimate of $7.00 per share for Namaste Technologies, which is higher than its market price. View our interactive dashboard – Namaste Technologies’ Price Estimate – and modify the key drivers to visualize the impact on its valuation.

Shopify – A Threat For Namaste?

Shopify operates a software-as-a-service (SaaS) e-commerce platform that connects retailers with suppliers and end-consumers. Its platform is capable of analyzing consumer buying habits that can enable retailers to alter their product offering or marketing strategy to maximize their profits. Over the last few years, the company has been used as a preferred channel for online sales by various organizations, both start-ups and more established ones, indicating the strength of the company’s platform. As a result, its stock has quadrupled since the beginning of 2017 and has surged over 60% since the beginning of the year.

Having proven its mettle in the fashion and cosmetic industry, Shopify is now expanding in the cannabis market in Canada. The software company has been chosen to sell recreational cannabis by British Columbia and Ontario – two of the key provinces in Canada that are likely to witness a surge in demand for recreational cannabis post its legalization next month. Further, the company has also tied up with large LPs, such as Canopy Growth Corp., Aurora Cannabis, and The Green Organic Dutchman, to sell their cannabis produce on its website. These LPs are likely to account for roughly 40% of the cannabis that will be produced in Canada in the near term. Given that the potential value of the Canadian recreational cannabis market is estimated to be in the range of $5-$10 billion in the coming year, these deals will enable Shopify to establish itself as a middleman in the cannabis industry and capture a sizeable portion of this space over time.

 

How Will Namaste Compete?

Namaste Technologies is an emerging company in the cannabis accessory space, selling vaporizers and other accessories for consumption of medical cannabis through its 30 e-commerce websites across 20 countries. The company is well-positioned in the cannabis-related market in Canada, given its artificial intelligence-driven platforms and supply agreements with LPs in Canada as well as abroad. While the company currently sells only medical cannabis accessories, it expects to launch (subject to receiving a sales-only license) in the near term its medical marketplace, CannMart.com, which will enable it to procure and sell medical cannabis products. However, with the legalization of recreational cannabis next month, Namaste plans to capture a portion of the recreational cannabis market by providing its technology platforms to its LP partners.

The company, through its partnership with YPB Group Ltd. (an Australia-based product verification and customer engagement company), aims to offer product authenticity, provenance, and supply chain integrity to its customers. The sellers on Namaste’s platform will be able to mark their products with a ProtectCode using YPB’s Connect platform to ensure the authenticity of the cannabis being bought, while the customers will have an option to track the location of the purchased products through YPB’s Secure Supply Chain tracking system. This, coupled with Namaste’s age and identity verification and facial recognition technology offered through its strategic partnerships, will enable it to offer a secure platform for online sale of cannabis. This is also likely to establish Namaste as a trusted source of authentic cannabis products in all its markets.

In addition, Namaste will offer technology integrations, such as same-day delivery service, through its partnership with Pineapple Express. While this same-day delivery service is currently being offered only in Toronto, the company plans to gradually roll-out the service into other major markets across Canada, including Vancouver and Winnipeg, which will strengthen its existing distribution channel. Furthermore, the company plans to develop its own private-label line of cannabis products through its strategic partnerships with various LPs. The company will offer premium strains and cannabis products sourced from reputed LPs, targeted at both the medical and recreational markets.

Thus, we figure that given the vast opportunity offered by the soon-to-open recreational cannabis market in Canada, new online players are expected to enter the space and try to grab a share of the pie. Since Shopify has already delivered a strong performance in other markets, it is set to spread its roots in the Canadian cannabis market and become a strong player in this space. However, given its advanced technology, strategic partnerships, and unique business model, we believe that Namaste Technologies is well-positioned to benefit from the upcoming growth in the market.

 

 

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