Neptune Wellness NEPT Stock Forecast & Analysis

Neptune Wellness NEPT stock was a Canadian cannabis company that turned into a holistic wellness brand company when they acquire Sprout Organics.  Now, Neptune Wellness is more of a wellness brand company that will be in some 90% of US organic baby food distribution; up from 50%.  They are also in Walmart for distribution with a total of some 20,000 retail locations they are distributing in.  Effectively, they have become a wellness brand that is also a sells cannabis whereas before they were an expanding cannabis company.

On the surface, when the newly appointed CEO Michael Cammarata converted the company into its organic baby food line, I felt this was a pet-project approach.  But, when you look down the road with a timeframe of many many years, there is something here.  Most cannabis companies are likely to branch into other wellness types of products, expanding distribution networks and building a sound foundation.

But, the focus on non-cannabis expansion is at the expense of the once-in-a-lifetime opportunity to expand into a product line that is being newly legalized with significant demand after a century of prohibition.  Still, there are significant merits to expanding.  And, the fruits of this labor are starting to show up on the top line of the financial reports.

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Neptune Wellness Company Comparison

Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:

#41 Market Cap: $56.5M
#18 Revenue Growth Rate: 17.7%
#71 Gross Margins: 11%
#58 Operating Efficiencies: 113.7%
#62 EBITDA/Revenue: -108.1%
#11 Cash/Debt Ratio: 72%
#26 Total Assets: $112M

I compare all cannabis companies to each other in my complete list of cannabis companies.  The above numbers do not tell the story of future growth for Neptune Wellness.  These numbers say where Neptune currently is, not the rapid expansion that is about to ensue.

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Neptune Wellness Latest Financial Release

Neptune Wellness NEPT Stock - Is NEPT stock a good investment for you cannabis investments

Here is a breakdown of Neptune Wellness Q3 financial data.

Neptune Wellness Gross Profits

First, I convert all data into USD as the numbers were reported otherwise.  Given that, there are three consecutive increases in revenue in the past three quarters.  And, you should expect further increases.  Neptune Wellness has expanded its distribution in the United States to now access some 90% of the organic baby food retail outlets; up from 50%.  In the next two quarters, Neptune Wellness will start printing these numbers.  But, this is organic baby food that is most likely to see the surge in revenue.  It is still revenue.  This has more to do with the expansion of its baby food line.

But, cannabis is newly legalized around Canada and the US.  Demand for Neptune Wellness is high in Canada where they sell products; they are in some 1,100 distribution stores in Canada. This has the potential to grow more and more as time moves forward.

What I would want to see is a partnering up in the US with a US MSO that can distribute Neptune Wellness products in whichever stores they own.  Neptune Wellness has demonstrated that they can connect and get products in retail stores.  This will extend to its cannabis products.  This kind of experience & drive that Cammarata brings will be valuable.

For now, as you can see, gross margins are finally positive for the first time in many quarters. Expectations are for a move higher in revenue to about $80M annually, up from $50M; about a 60% increase.  The next level of revenue has the ability to be higher on a marginal basis and this should drive up gross margins to respectable levels.

Neptune Wellness Operating Profits

As you can see, operating costs are fairly consistent.  If there are incremental increases while there is a 60% increase in revenue, the numbers could produce operating profits in the lowest percentile, pushing Neptune Wellness into a leadership position.  But, oftentimes increases in revenue come by increasing sales in the SG&A.  So, I would expect that the increase in revenue will also see an increase in sales costs.  But, the future $80M has the ability to cover these costs.

Neptune Wellness EBTIDA & Net Profits

Profitability?  Not even close at this stage.  However, push revenues upwards by 60% to the target of $80M next year, and all of a sudden the story changes.  I mention this often that costs are covered by the initial revenue.  Then, additional units moving through the system will have an outsized effect on margins.

If you have $10M in a quarter in revenue, but, all of the costs for producing a product also cost $10M, including rent, electricity, labor, unit input costs, packaging costs, et. al, then you break even.  But, assuming you push through 10% more products through the system, the only costs you would have would be unit input costs, labor, maybe a smaller increase in electricity, and other costs.  But, the rent, which could be very high compared to the first $10M in revenue, is already paid for by that initial $10M in revenue.  That means margins on the additional units after these initial costs will be outsized.

Read: There will be rapid increases in improvements in margins.

Neptune Wellness Cash On Hand

There is ample cash on hand.  But, there is also a solid amount of debt.  So, this could become problematic.  There are two ways to increase cash on hand for working operations; debt & issuing more stock.  Looking at the total equity, which is next, tells us that something needs to happen.

Neptune Wellness Total Equity

Because of the decline in total assets, total equity has taken a hit and declined.  The good news is the pending increase in revenue that can substantiate taking on more debt to bring in cash; raising total assets by whatever number necessary.  But, Neptune Wellness will have to spend that money over the next few quarters until they achieve net earnings positive status.  That would dwindle assets and maybe push equity negatively.

It may be that Neptune both increases debt via financing as well as issues stock.  That would be something that will dilute shareholders.

Bottom line is that Neptune Wellness just lost $14M in net earnings but only has $13M cash on hand.  Something needs to happen but, I am not certain it will be pleasant.

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Neptune Wellness Stock Forecast

Neptune Wellness NEPT Stock Forecast

I kept these numbers fairly conservative for Neptune Wellness simply because I am not certain on growth rates of baby food.  However, I do believe that Neptune Wellness could partner up with a major US MSO to distribute its products here in the States.  That could really accelerate margins and push for profitability quickly.

Is Neptune Wellness NEPT Stock A Good Investment?

Neptune Wellness NEPT Stock Chart
Neptune Wellness NEPT Stock Chart

I wonder on the issue of cash on hand whether there will be a need to raise cash via debt or stock raise.  This is the one variable that I see as a challenge for Neptune Wellness right now.  They are not an exclusive cannabis producer, and so this means there will be lower growth rates after this surge in revenue from pushing distribution around the country.

Would I acquire Neptune Wellness?  No.  That is not to say the stock will not go upwards as much as it is that I am looking for pure-play cannabis companies.  Still, the upside potential is significant and, I believe there is a good chance that Neptune Wellness will do well.  But, I’m focused elsewhere.

Neptune Wellness NEPT Stock Financial Data

Neptune Wellness NEPT Stock Financial Statements

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4 thoughts on “Neptune Wellness NEPT Stock Forecast & Analysis

  1. Neptune Wellness To Exit Cannabis Buumersiness, Resulting In Firing 50% Of Employees
    What is the target price now?
    Looks like their just going to do consumer packaging
    This planned action is intended to provide significant cost savings and help maximize operational efficiencies, resulting in a 50% reduction in workforce, over 30% reduction of total payroll costs and an estimated annual cost savings of CA$5.8 million ($4.63 million). In addition, the company expects to see additional cost savings from corresponding reductions in corporate overhead costs and professional fees.
    “This is the final stage of our transition to a pure play, purpose driven consumer packaged goods company. This strategic divestiture greatly simplifies our overall structure, enabling us to hyper-focus on those areas of the business we believe are best positioned for profitability and growth,” stated Michael Cammarata, president and CEO of Neptune. “Of course, the most difficult part of the company and board making this decision is the impact on our workforce. We are committed to working with those employees to ensure they are supported throughout this transition. I extend my deepest gratitude to each and every person impacted by this decision and thank them for their hard work and dedication to Neptune throughout their tenure.”
    Renewed focus on high-potential business segments
    With the planned divestiture of its cannabis business, Neptune is renewing its focus on the core brands – Sprout Organics and Biodroga Solutions – that align closely with future consumer trends and show a greater potential for future growth and profitability.


    Biodroga Solutions, Neptune’s B2B nutraceuticals business, has a strong foundation and a robust pipeline for continued growth. The company’s supply chain capabilities and product development expertise can also be applied to future Neptune brand and product innovations. Cedrick Billequey, Biodroga’s business leader, also oversees Forest Remedies, a vegan Omega supplement brand, providing synergies between the B2B business and consumer brands.

  2. I know what your saying by all the cuts,
    But how long will that take they just approved a 35-1 share so that will be about $4.87 a share and and if they don’t produce quickly it could potentially be a Nasdaq issue in the near future and now that their out of the THC game and already on Nasdaq any government positive news wouldn’t move stock much IMHO Hope it grows and fast

    1. @jeffspahn2011gmail-com You are correct.  But, I do not think they have fully divested their CBD assets yet.  So, they may still get lumped in with any cannabis rally.  

      Meantime, I think this could be a long term play.  I thought the food thing was interesting, I just always had a tough time connecting the dots with organic food and CBD.  You can white label out and get the same thing done at a far lower price and, maybe that is in the cards for them in the future.  

      This CEO is very high level.  He will be able to make this company work.  That, I do not doubt.  

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