Let me get this out of the way before I begin my article.
To the myriad of Namaste (N.V) nuthuggers who mocked me on Facebook and Twitter for pointing out issues with your favourite company, to the ‘experts’ who claimed Namaste’s license would get them to $7 per share, to the messageboard trolls who asked “how you like us now?” when the stock went from $1.25 to $3.75 in August/September…:
It’s been a rough month for Namaste (N.V) investors.
First, management threw a nightclub party in Montreal for shareholders who refused to sell for six months, and lost their Tilray deal when they decided it’d be a wise move to have ‘sexy nurses’ signing up patrons for ‘medical telemedicine interviews’…
In the midst of a hot run, the party turned their stock upside down, if only for a hot minute, only to kick upwards again when Health Canada emerged from its hidey hole and inexplicably handed the company a sales license.
But that jump has also since been sharply turned upside down, and the stock is now back where it was before all this rollercoaster action began.
You never want to see this in a pubco – where the whole sector has risen and the company has announced what it’s long pointed to as it’s turning point, where things would finally take off, but instead you’re seeing a massive sell-off.
Right now, with license in hand, a whole load of acquisitions, and an industry a year or so more mature and right up against day one of the new expansive adult use weed laws, Namaste stock can be had for less than it cost in late 2017, when none of that stuff was in place.
There are multiple reasons for this, and only some of them are Namaste’s fault, but some of them are most definitely Namaste’s fault.
- The old adage of buy the rumour, sell the news, totally applies to Namaste, like it has applied to anyone else, ever. Supreme Cannabis (FIRE.V) is one of our favourites, but it has a long record of stock rises leading up to the announcement of expected news, and once that expected news lands, long time holders sell-off rather than buying more. It’s happened to them because it happens to everyone. Unexpected news (Constellation buying into Canopy, as an example) goes to the moon, but expected news (Namaste gets a license it has been hyping for a year now), and you get a sell-off because that predictable eventuality is baked into the existing share price. Namaste shareholders, many of whom are new to the whole investing game, seem to not understand this concept, but boy are they learning.
- The problem with compelling a big chunk of your shareholder base to keeping their stock until a given time (such as the announcement of a license, or a bagholder nightclub party) is that, at some point, everyone has the greenlight to sell and, when they do, you’re going to see a slump. If everyone’s been waiting for the big post-license green explosion and all they see is red, folks will get out and quick, and bagholders will be holdin’.
- Namaste is under attack by short sellers, in the guise of Citron Research, which spotted that big run and unloaded a ton of dirt on the company right in the middle of it. You can go back and forth on the validity of that dirt (and we will), but when you get enough in one place, stocks do topple.
- Namaste took on a $45 million bought deal for $3 per share when the stock price was running higher, which saw a bunch of selling to bring it back down to that bought deal level – and below. The release of that news could not have helped their short sellers more. Eight Capital is buying all that stock at a price higher than the market, and will presumably be looking to sell that stock to its clients – which may be difficult considering the next paragraph.
- Following the shorters are the ambulance chasers – the law firms that have bots looking for any negative piece of news about a public company, and send out news releases the moment they sniff a potential law suit. These scare investors who, in this case, are already freaked out and bleeding, and wondering if it’s worth the risk of keeping their stock, let alone buying more.
When the Rosen Law Firm comes after you, you should probably wait a few weeks before actually giving your lawyer a retainer, because the Rosen law firms goes after everyone, like a feral raccoon leading a team of paralegals. It doesn’t take much more than a random negative online blog post to set them off, and other companies follow their lead when they see Rosen is chasing, which is what’s happening to Namaste right now.
Rosen takes a scattergun approach to this stuff, posting about their intent to file, or at least investigate, class action suits before they’ve really compiled enough evidence to suggest one may be warranted.
As an example of this, on October 8, the Rosen Law Firm announced it was seeking a class action lawsuit against Alphabet, the parent company of Google, and the Campbell Soup Company. On October 6, it sent out news regarding actions against Chegg Inc, Abbvie Inc, Hasbro, MGT Capital, Alynlam Pharmaceuticals, and our friends at Namaste.
The Rosen website front page lists its ‘new securities cases’ up top, but any company concerned about being listed should just wait a few days as they’ll quickly fall off the page, replaced by new names.
Why do they do this? Because this:
Rosen Law Firm Ranked No. 1 in the Nation for Number of Securities Class Action Settlements in 2017; Firm has been Ranked in the Top 3 Each Year Since 2013
And what does that look like in practice?
Hayes v. Magnachip Semiconductor Corp., No. 12-CV-1160-JST.
The Rosen Law Firm was co-Class Counsel in this certified class action in the U.S. District Court for Northern District of California. The complaint alleged violations of §§10b and 20(a) of the Securities Exchange Act arising out of the Company’s issuance of false financial statements. The parties settled this action for $29.7 million in cash.
Beck v. Walter Investment Management, No. 14-cv-20880-UU.
The Rosen Law Firm was co-Lead Counsel in this consolidated class action in the U.S. District Court for Southern District of Florida. The complaint alleged violations of §§10b and 20(a) of the Securities Exchange Act arising out of the Company concealing its true financial condition. The parties settled the action for $24 million in cash.
Deering v. Galena Biopharma, Inc., No. 3:14-cv-00367-SI (Partial Settlement).
The Rosen Law Firm is currently serving as co-Lead Counsel in this class action pending in the U.S. District Court for District of Oregon. The complaint alleges violations of §§10b and 20(a) of the Securities Exchange Act arising out of the Company concealing an undisclosed stock promotion scheme. The firm secured a partial settlement for $20 million consisting of $19 million in cash and $1 million in stock. The case continues against other defendants.
The risk of a class action suit can sometimes see insurance companies compelling their clients to settle rather than fight a case they may actually be likely to win. After all, offering a $20m payment to get lost beats paying $20m in legal fees trying to win a case with a risk of a $200m payout if things go sideways.
That said, not a whole lot of these fishing trips end with a steelhead swinging on a hook.
In the case of Namaste, its lawsuit bait comes from a Citron Research report that alleges a lot of shady stuff.
On October 4, 2018, Citron Research published a report entitled, “Namaste: Citron has exposed complete FRAUD that underpins the ‘Business’ of Namaste,” stating that CEO “[Sean] Dollinger said he sold [an] asset to an arm’s length party . . . but it was really sold to David Hughes who has been with Namaste since Feb 2015 (and Paul Burn who has been with Namaste since 2016).” The report also alleges that “Namaste has lied to its shareholders, Canadian Regulators, US Regulators; and most of all has attempted to hide US assets from the Justice Department in an attempt to obtain a US listing.”
There’s other stuff, some of which is very on point:
- Quebec regulators were pissed at Namaste’s workaround for doing business in that province, and the ‘sexy nurse’ routine pissed off nurses in that province.
Her business model is to recruit clients by obtaining a medical cannabis order of convenience from a Skype “telemedicine” interview with a nurse practitioner from Ontario. “We can get you a prescription in 10 minutes, through our application on the App Store, and eliminate all the borders that prevent you from buying the products you want, anywhere in Canada. We can even get you a medical cannabis prescription tonight, “said Namaste CEO Sean Dollinger.
La Presse’s description of the event drove the management of the Société des alcools du Québec, which is responsible for the future Quebec Cannabis Society. “This is an exasperating situation, which we consider utterly unacceptable. There is only one potential cannabis vendor in Quebec, and this is the SQDC. There is no gray area, and it will be zero tolerance, “said spokeswoman Linda Bouchard, denouncing in passing the” old marketing “used by Namaste with his nurses.
- Namaste CEO Sean Dollinger told investors the company had a NASDAQ listing squared away when, in actual fact, the company doesn’t qualify for one. We covered this in depth and it’s important.
“Let’s look at our accomplishment of being accepted to one of the largest stock exchanges in the world, and not only entering on on the lowest tier, we’ve been accepted on the second tier due to our requirements. Don’t think that the Nasdaq just takes an application and takes a payment and their happy at the end of the day. They went through our books, they went absolutely everything for 6 weeks, we’ve been working around the clock from the time that I went on your show and called out on our shareholders and investors for support and let’s get to that $3.50 mark.”
Sean Dollinger from Namaste 420 Weekly Update July 25, 2018
- To get that listing, Namaste had to dispose of US assets. Citron alleges it didn’t. Or at least, didn’t really, because the sale was to themselves.
Citron asks, “Who in the world would want to buy a money hemorrhaging online vape business from Namaste?”
In a direct response to that simple question, Sean Dollinger replied:
[Question:] and the buyers are arm’s length, are they?
[Sean]: absolutely! It’s a group out of Europe”
— Sean Dollinger, Nov 28, 2017 Call
Namaste allegedly sold these assets for US$400k to ESC Hughes Holding Limited. [..] A simple corporate search will illustrate that the purchaser is out of Ireland is not a third party, but rather none other than Namaste executive David Hughes.
- Namaste racked up $2.6 million in consulting fees, that Citron believes are undisclosed related parties. No evidence of that claim is shared, though the consulting fees are absurd regardless.
We’ve pulled apart Citron’s work before when it’s gone after companies for spurious reasons, seemingly to support their short position more than actual truth. But Namaste sure does give a lot of ammunition to the shorters in just going about it’s general business.
Today, Namaste responded to the Citron short report and, in doing so, said some things that didn’t quell the fire.
Namaste Technologies Inc. is aware of several misleading and false research reports published by Citron Research Inc. and press releases and advertisements distributed by several U.S.-based law firms seeking plaintiffs for potential securities litigation against the company.
False and misleading? Okay, let’s hear how they’re false:
The company wishes to respond to these claims and inform shareholders that its Nasdaq application is progressing but has not yet been accepted or approved; that the company’s sale of its U.S. assets was not to a related party and was not a related party transaction as defined under applicable Canadian securities laws; and that other assertions made by Citron are equally inaccurate and misleading.
Wait a second, Citron wasn’t the one saying Namaste’s NASDAQ listing was a given, Namaste’s CEO was. So in clarifying that it is ‘progressing but has not yet been accepted or approved”, Namaste is actually admitting that Citron (and Equity.Guru before them) was correct.
Not false. Not misleading.
On the related party issue, a little more information regarding Namaste’s defense would be valuable here, because just saying “it’s not related under applicable Canadian securities laws” isn’t really an answer to the allegation.
Finally, the “other assertions made by Citron are equally inaccurate and misleading” is obviously bunk because it appears Citron’s other allegations were demonstrably correct or, at least, if they weren’t, Namaste hasn’t seen fit to explain how.
But this line was my favourite:
To the company’s knowledge, only one U.S. federal securities action has been commenced, although the company has not yet been served.
“Only one US federal securities action has been commenced..” – Well, who amongst us doesn’t have at least one US federal securities action currently before the courts? Cost of doing business, amirite?
Moreover, the company understands that U.S. law would require consolidation of any further federal court litigation, and the flurry of press releases and advertisements does not mean there will be myriad lawsuits.
He’s right here. It would likely ‘be only one lawsuit,’ but with a myriad of cosigners and law firms weighing in, looking to have the company refund to shareholders any money that they lost from $3.70 down to under $2. That’s not an insignificant thing.
Look, these class action notes can be a real pain in a pubco’s ass, and more often than not they’re not much to worry about. But they can drag on for years, and if they get any sort of critical mass of investors who’ve lost money taking them seriously, they can present as a real problem going forward.
Previously, when Montreal’s La Presse broke the story that the Quebec regulators were pissed at the sexy nurse party and Tilray was pulling out of their supply deal, Dollinger put out another news release claiming La Presse was ‘false and misleading‘, while also admitting things said in the article were true.
“We were very disappointed to see this article published on La Presse, which was not only misleading but completely inaccurate in relation to many of the claims related to the company. Furthermore, it is with disappointment that Tilray chose to terminate the agreement, as Namaste was not in breach of any terms of the agreement.
This “THEY GOT IT WRONG! Also, we confirm they didn’t get it wrong” routine has been standard practice for Namaste since the beginning. We’ve seen the CEO claim ‘certain people’ (us) were begging them for a marketing deal (nope) and saying we’d wreck their share price if those unnamed people didn’t get one (never happened). And that’s usually been followed by troll bagholders littering our messageboards with abuse.
But it’s hard to get past the feeling that this time it’s a little different. There’s a lot of issues coming to a head at once.
There are plenty of ways that CEO Dollinger has skirted the traditions of the public markets, if not the rules themselves, or even the law, over the past year, and his answer to that has always been to point to the share price going up and claim people (like Equity.Guru) were committing fraud in pointing out those problems
Now the share price is being shredded, the company is facing investigations in Quebec and in US federal court, and Citron has, I’m most certain, made a shit ton of money so far shorting the heck out of Namaste stock.
That wouldn’t be a problem for Namaste if they were, say, buying back their stock at the low price, which is something they claimed they’d be doing just a few months ago, before they went and agreed to a $48m bought deal to sell MORE of that stock they were supposed to be retiring..
Pursuant to the notice of intention filed with the exchange, the corporation intends to purchase for cancellation, through the facilities of the exchange and at the market price of the corporation’s common shares at the time of purchase, up to 25,308,136 common shares, representing approximately 8.9 per cent of the company’s issued and outstanding common shares and 10 per cent of the company’s public float (as such term is defined in the TSX-V corporation finance manual).
Namaste Technologies Inc. has entered into a letter of engagement with Eight Capital, under which Eight Capital has agreed to purchase, as co-lead underwriter and joint bookrunner with Canaccord Genuity Corp., 15 million units of the company on a bought deal basis pursuant to a filing of a short form prospectus, subject to all required regulatory approvals, at a price per unit of $3 for gross proceeds of $45-million.
If Namaste can’t remember whether it wants to make shares scarce or dilute the market with more, critics have every right – nay, duty – to point out the bleeding obvious…
..that Namaste needs a new CEO.
— Chris Parry
FULL DISCLOSURE: Equity.Guru holds no stake in Namaste, has never held a stake in Namaste, and will hold no stake in Namaste going forward, either as an equity holding or a short sale. It has received no compensation from any party for writing this point, nor has it at any time been compensated in any way, shape, or form for writing a negative piece about any company. Equity.Guru regularly writes negative stories about its client companies and companies that it holds a stake in, when such stories are justified. Look, just fix your game, Sean. Be a grown-up. You’re making it too easy for Citron to kick your ass about.