Khiron Life Sciences (KHRN) President Chris Naprawa on Selling Weed in Mexico
Khiron Life Sciences (CVE:KHRN) President Chris Naprawa weighs in on the significance of the global cosmetic opportunity as it relates to cannabis.
James West: Hey, welcome back. My guest in this segment is Chris Naprawa. He is the President of Khiron Life Sciences Corp., trading on the TSX Venture under symbol KHRN. Chris, welcome back.
Chris Naprawa: Thank you, thank you for having us.
James West: Chris, you put out a fantastic press release today, at least by my estimation, that you have achieved Mexican retail distribution for your Kuida CBD cosmeceutical brand, and that obviously has huge implications given that Mexico had a population of 120 million. Tell me how, what portion of that population is going to have access to this product? What kind of sales do you anticipate?
Chris Naprawa: Yeah, so we launched the Kuida brand about a month ago in Colombia; we’ve been picked up in a couple of different pharmacies, we’ve got good distribution online plus our own branded online portal to purchase Kuida products, and this is an example how, if you have a good base in Latin America, you can extend it to other regions in Latin America. So Farmalisto, which is one of our partners in Colombia, they can just easily pick up the sku and start selling that in Mexico.
So we’re still pending some government approvals, because they just put out the guidelines yesterday, but we were anticipating those; they look just like we thought they might look, and we’re ready to have a product that will fit well within those guidelines.
James West: Hmm. So then, it’s available from anywhere in Mexico, online?
Chris Naprawa: Correct.
James West: And what about physical store locations?
Chris Naprawa: Stay tuned.
James West: Stay tuned, okay!
Chris Naprawa: So Kuida for us right now is just eight skus, and I think as you see us develop, we’ll add more and more skus and beyond just cosmetics, sort of, you know, in the general wellness category. That would include beverages in that line, that would include other things in that line. Kuida, we have a fantastic marketing team with amazing leadership, and we’re going to rapidly expand beyond Colombia and Mexico. You’ll see another region from us shortly.
James West: Okay. So the current eight skus, what sort of is the product range within those eight skus?
Chris Naprawa: So we call those cosmeceuticals. The active ingredient is called CBDerm, which is our own branded ingredient, and it’s a line of wellness products geared towards women. Latin American women spend an absolute fortune on cosmetics on a per capita basis; Mexico is no exception to that. So we’re focused on a market where there’s already high spending, they’re looking for changing, looking for alternatives. All natural, with the natural attributes that CBD brings as far as hydration, anti-inflammatory, etcetera. So we can make product around that. And that’s our first foray into that business, the general wellness category.
But with CBDerm, we can add that into other categories and other products.
James West: Hmm. So Khiron has also sort of been at the forefront of clinical research as it pertains to medical cannabis in Colombia, I know. So what is the actual benefits of CBD as it is applied to skin? I’m really interested, both from a capital markets perspective and from a personal use perspective.
Chris Naprawa: I’ll send you some samples so you can try it out.
James West: Okay, great! I’m not sure they’re legal here.
Chris Naprawa: Well, I’ve got some in my car. So CBD has a monograph in Colombia, which means we can make product claims associated with that. The two main product claims that we can make are around hydration – so it’s about three times more hydrating than Vitamin E, for instance – and its natural anti-inflammatory attributes, and we can talk about that in the product line as well. So things where that is helpful, we can build products and formulate and build that around our brand, which I think we’ve got a very, very solid brand strategy. We’ve got excellent distribution, we’ve got good product support, we’ve got a great group of vendors that are helping us put these products together, package them, and get them on shelves. And we’re on shelves all over the place, now, and the sales are going very, very briskly.
James West: Excellent. So I mean, from a cosmeceutical standpoint, that’s impressive; there’s obviously a huge market, there. I’m curious as to what is the direction of more clinically-oriented research in terms of, I was just reading something yesterday about Rick Simpson, who, you know, created a CBD concentrated cream and he applied it to some cancerous growths on his arm, and four days later, they disappeared. I mean, that’s anecdotal, but what kind of clinical research is available to support those kind of indications?
Chris Naprawa: Well, when you say the word ‘clinical’, I can’t help but mention our clinics. So we made our first acquisition that’s still pending TSX approval, but we bought ILANS, which is an enormous clinic in Bogota. We have over 100,000 patients; I think we have about 60 licensed physicians now on the payroll at Khiron. That gives us the ability to do clinical trials very, very quickly. We also noticed that we put out a press release about our operations in Chile, where we’re partnering with Fundación Daya. They have 17,000 patients, we have access to all that clinical data, and we can use that back in Colombia and plus run our own clinical trials through that.
So stay tuned on that – we’ll be announcing something probably this year, that we’re entering clinical studies on a whole bunch of different levels. Dr. Maria Fernanda, who is in our Mexico City office, she’s done a number of trials as well; expect her to continue on with that work.
James West: Sure. We had an interview with her here recently, it was great.
Chris Naprawa: She’s excellent.
James West: Yeah. Okay, so now you’re talking about beverages and other consumer packaged goods. What is the status of legalization across Latin America? I mean, is it as fractured as the States in the United States, or is it more broad-based? Obviously, Latin America does not have a Federal sort of management or government, but what is the status of all of that?
Chris Naprawa: Well, what I see that, James, is that the cannabis phenomenon is now truly global. It’s not a California thing or a BC or a Canada thing, this is a global phenomenon, and markets are regulating and de-regulating at a pace that is absolutely astounding. We have a full regulatory team on board, and for us it’s very hard to keep track.
Governments realize that adults want to make their own choices, medical professionals want to make their own choices, and it’s not the business of the governments to be standing in the way of that; so things are happening very, very quickly.
Now, within our region, Latin America, which is kind of everything from the Texas border south, every region is different. People might be surprised to know they even speak different languages in different parts of Latin America. So each region is very, very different; we’re in touch with all the regulators, and consult with them on a regular basis. So you know, just as yesterday, you know, Mexico opens up their guidelines, we announce product the next day. You know, expect that to happen in other regions; just as soon as they open up the markets, we will be there the following day, ready to go.
James West: Interesting. So has any of this materialized on the company’s balance sheet at this point? Will it show up next quarter, are there sales in any substantial quantity?
Chris Naprawa: Yes. So we’ve already announced that we’re in commercial sales of our Kuida product; obviously, ILANS is a commercial business, so starting this quarter, which is calendar Q4 quarter, when we announce that, we’ll have revenues associated with it. Which puts us in a very unique category amongst our peers, and it’s growing. We have an analyst covering the stock now, and she has some numbers associated with revenue for this year and the year after, and it’s our goal to meet or beat those numbers.
James West: Wow, fantastic. What is the outlook in terms of sales just within your Colombian market? I mean, have you issued any guidance in terms of finance?
Chris Naprawa: No, we don’t issue any guidance. We’ll turn to the analysts and let them do that for us, and we’ll put out our numbers in due course. But obviously the market is massive; you know, Colombia alone is 50 million people, they have an enormous spend in the billions of dollars for cosmetics. You know, with our clinic business, we’ve already announced what kind of revenues are associated with that, and when we talk about those hundred thousand patients, it’s really, really critical for people to understand what the model is, here. You know, those 100,000 patients are currently being treated primarily by opioids; they want an alternative to that. So if we can convert those people in whole or part, that’s where we can derive a lot of revenue.
For instance, on that model, if we can take 10 percent of those 100,000 patients and convert them in whole or part to some cannabis products that we’re going to be selling, that’s 20 million in revenue and 10 million EBITDA. If we do 30 percent conversion, that’s 50 million in revenue and 30 million in EBITDA for next year.
So – and that’s just two clinics in Bogota. That model can be repeated throughout Latin America. I can walk you up to some very, very impressive numbers.
So whatever lowers our cost of getting towards patients, lowers our execution risk, increases our ability to drive revenues very, vey quickly and provides leverage in the business, we’re going to do it.
James West: Okay, so the largest LPs in Canada – Canopy Growth, Aurora, Aphria – they’ve all announced acquisitions in Colombia and footholds in the Latin American market. To what extent do you feel threatened by the existence of these much larger companies in the market that you guys are essentially first to?
Chris Naprawa: Yeah, not much. I think everyone needs to be there, and like I said before, this is a global phenomenon. You cannot be in the cannabis business without being in Colombia; that is impossible. This is the best place on the planet, beyond a doubt, not only just because of climate, but access to people, to infrastructure. This is an agricultural export country; all the regulations are set up for it, and there’s a reason, like I said before, we don’t grow coffee and bananas in warehouses in Mississauga. It doesn’t make any sense. This is where you need to be for that.
So again, most of our competitors are focused on that low-cost export business, and we’re focused on low costs as well, but primarily for high-value branded products in our own region. And it’s a massive market, and there’s plenty of room, and you know, one day we may have a partner in Colombia, but for now, we’re doing very, very well on our own as an independent company.
James West: All right. Well, Chris, that’s fantastic. Exciting, as usual. Full disclosure: I am a shareholder of the company and plan to continue doing so. Thank you very much for your time today.
Chris Naprawa: Thank you, James.
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