Khiron Life Sciences Attains Record Closing High Price

Khiron Life Sciences Inc (CVE:KHRN) OTCMKTS:KHRNF) momentum kept rolling Monday, as the predominantly LATAM operator closed at a new all-time daily high. This was the fourth consecutive such close for Khiron—on heavy volume to boot. We chronicle Khiron’s impressive recent run to the top.

[stock_chart symbol=”KHRN:TSV” width=”60%”]

In a sense, Khiron Life Sciences shouldn’t even be undergoing this bullish impulse to begin with. The company has not released a presser since September 12th; or material presser since August 23rd. Even then, the news provoked a short-term smothering effect on price: KHRN announced a common share offering at $0.90/share to raise aggregate gross proceeds of up to $11,250,000—a 10% discount to market. The junior market—save for Aleafia Health Inc.—has mostly consolidated over the past week. For outsiders trying to understand this move, the catalyst may not seem apparent.

But for those in the know, the move in Khiron Life Sciences is more about execution and scarcity than it is about glitzy press releases. It’s about an impressive management team which includes former DEA Supervisor Matt Murphy, CEO Alvaro Torres (SNC-Lavalin Colombia) and former Mexican president Vincente Fox. It’s about their pure-play LATAM operations, which are likely coveted by several larger LPs wishing to enter the continent expeditiously. And now, it’s about sentiment as a major Canadian investment bank affirmed what we suspected all along.

Canaccord Genuity provided the kerosene to already-bullish price action by initiating coverage on KHRN with a “speculative buy” rating and $3.00 price target on September 20th. The reasons cited are similar to the ones the Midas Letter has touted since May: superior management, rare pure-play LATAM exposure, and growing medical client base.

But another common theme becomes apparent as I further parse through Canaccord’s research report: valuation. This fact is strewn throughout, mimicking the narrative we’ve been reciting in top line terms all along. Comparatively speaking, Khiron is downright cheap compared to its peers. The money quote encapsulating this truism can be found on page 37, when Canaccord says the following:

We believe the company trades at a significant discount to the Canadian and US peer group, with an EV to 2020E EBITDA of 3.2x, which reflects an ~80% discount to the Canadian average of 16.5x.

Yes, eighty percent.

Backing up this conclusion, Canaccord notes that KHRN trades at a valuation discount compared to recent peer LATAM transactions. The average value afforded to four Colombian acquired operators so far: $246 million. This includes the $290 million Aurora Cannabis Inc. paid for ICC Labs Inc. earlier this month. Fully diluted, KHRN is only valued at around $156 million, despite the fact their clinic distribution model is much more advanced.

Khiron Life Sciences CEO Alvaro Torres discusses securing multiple medical cannabis endorsements from the two largest medical associations in Colombia

This distinction matters because the importance of ultra-efficient production capacity is not as prized in a country like Columbia, where labor is cheap, arable land is pennies on the dollar, and industrial-scale growing is conducted outdoors. Khiron business structure is geared towards nurturing a medical client portfolio, not large scale cannabis production. Instead of playing that skinny margin game, the company has made a purposeful decision to pursue higher margins the current model provides. According to Cannacord, this will equate to a gross margins reaching the mid-forties in percentage terms by 2021E.

In terms of the rally itself, prices came within a penny of touching $2.00/share, finishing up $0.13 to $1.82/share (↑7.69%) on Day 3 of the run. Volume was brisk, chiming-in at 2.12 million shares—the stock’s second highest total aside from its inaugural, May 24th session. Shares have almost doubled in less than a month, and the company is becoming a household name among the cannabis investors.

Whether Khiron Life Sciences can continue to run remains to be seen. But keep in mind there are only around 64 million shares outstanding—among the lowest fully-diluted share structure of any prominent operator in the sector. With relative strength technicals such as the 20-period RSI (daily) nowhere near overbought territory, and with the company trading in blue sky territory, there’s room for upside extension. The recent move in Aleafia—a Canadian operator executing a similar clinic distribution model domestically—demonstrates that blue sky breakouts can run longer than initially imagined (although ALEF has incurred multiple catalysts along the way).

We await to see whether Khiron can maneuver a similar feat in lieu of material news flow, should recent trends continue.

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Notice for Forward-Looking Information

Certain statements in this press release are forward-looking statements and are prospective in nature. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Such forward-looking information includes that Khiron Life Sciences Corp will be a big, successful company in the cannabis sector; that cannabis use and sales will grow and KHIRON’s sales along with it; KHIRON’s intended acquisition of various foreign companies and expansion into the European and South and North American markets; that cosmeceuticals is and will continue to be a fast growing and profitable sector of the cannabis industry; and that it will be able to carry out its business plans.

 

Readers are cautioned to not place undue reliance on forward-looking information. Forward looking information is subject to a number of risks and uncertainties that may cause actual results or events to differ materially from those contemplated in the forward-looking information, and even if such actual results or events are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on KHIRON. Such risks and uncertainties include, among other things: that a regulatory approval that may be required for the intended acquisitions and subsequent sales are not obtained or are obtained subject to conditions that are not anticipated; growing competition for intended acquisitions in the cannabis industry; potential future competition in the markets KHIRON operates for sales; competitors may quickly enter the industry; general economic conditions in the US, Canada and globally; the inability to secure financing necessary to carry out its business plans; competition for, among other things, capital and skilled personnel; the possibility that government policies or laws may not permit legal cannabis sales or growth or that favorable laws in place may change; KHIRON not adequately protecting its intellectual property; interruption or failure of information technology systems; the cannabis market may not grow as expected; KHIRON’s technology may not achieve the expected results and its accomplishments may be limited; even if it is granted patents, it may not have success at licensing its technologies or sell its products at the rate expected; planned acquisitions and partnerships may not materialize because of inability to agree on terms with prospective partners or targets; KHIRON’s business plan also carries risk, including its ability to comply with all applicable governmental regulations in a highly regulated business; incubator risk investing in target companies or projects which have limited or no operating history and are engaged in activities currently considered illegal under US federal and foreign laws; and other regulatory risks relating to KHIRON’s business, financings and strategic acquisitions, including securities laws, trade rules, and foreign country regulation that is not the same as Canadian or US regulations.

 

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