Khiron Life Sciences (TSE:KHRN) Surges As Mexican Cannabis Legality Approaches

Benjamin A. Smith
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It appears Khiron Life Sciences Corp (CVE:KHRN)(OTCMKTS:KHRNF) operational maneuvering is already bearing fruit. Just months after sponsoring the CannaMexico World Summit, and attracting the 55th President of Mexico—Vincente Fox—to its Board, less restrictive adult-use cannabis policies appear assured in República Mexicana. Recent developments have been a boon for Khiron’s stock price, with KHRN surging ↑53.33% over the past three sessions.

The catalyzing events began last Wednesday, when Mexico’s Supreme Court ruled that an absolute ban on recreational cannabis use was unconstitutional, effectively leaving it to lawmakers to regulate its consumption. By ruling in favor of two legal challenges filed against prohibition of recreational marijuana use, the Court created a precedent lower courts will be required to follow.

The ruling de-fangs the government’s authority to prosecute possession, cultivation and consumption within reason, leaving cannabis regulation as the only viable policy option. New President-elect Andres Manuel Lopez Obrador has consistently reiterated his wishes to quickly legalize marijuana, as part of a broader strategy to fight poverty and the influential cartels.

For Khiron Life Sciences, they couldn’t have asked for better impetus to reverse a nasty October sell-off. The reason, of course, is Khiron’s early dedication towards amassing influence in the country.

In late May, KHRN was among the primary sponsors of CannaMexico 2018, with the goal of fomenting medical/political inroads, thereby replicating its Colombian patient acquisition model in Mexico. As it turns out, Khiron’s presence was so effective that none other than Vincente Fox—the popular former Mexican president and high-profile cannabis advocate—joined the company’s Board of Directors just weeks later.

Khiron Life Sciences President Chris Naprawa expresses the value proposition Vincente Fox adds to the company, and Latin American cannabis market in general

The appointment of Fox was more than just cosmetic. It gave the company certified gravitas within the region, which was already elevated as one of Canada’s only pure-play LATAM operators. To place Mr. Fox’s importance in context, his name shows up 27-times on Canaccord Genuity‘s September 20, 2018 Initiation of Coverage on Khiron Life Sciences (Speculative Buy, C$3.00 price target). In their view, the addition of Fox…:

“…expands Khiron’s scope of influence and could be instrumental in securing new business ventures.”

“… bolster(s) Khiron’s brand with consumers and institutional investors alike. We further believe his role will expand Khiron’s scope of influence, potentially expediting Khiron’s expansion plans into other strategic markets.”

“…view(s) Fox’s participation on Khiron’s Board as a major achievement for the company and we believe his role as a brand ambassador should improve brand recognition and expand Khiron’s scope of influence and relationships within LatinAmerica. This could potentially expedite Khiron’s expansion plans to other strategic markets.”

In Cannacord’s view, Mexico presents the second largest cannabis market in Latin America with $2.7 billion annual potential. They also believe significant medical-market upside exists, given its population (approximately 130 million) and higher per gram price point (they estimate $5/gram versus $3.75 for Colombia). Canaccord doesn’t even include Mexico in their sum-of-the-parts |(SOTP) valuation, which envisions a share contribution of $1/share for every 50,000 Mexican patients Khiron can obtain.

While last week’s Mexican Supreme Court ruling doesn’t affect the medical cannabis market per se, it should re-focus the government to conclude final medical cannabis regulations, which still haven’t been finalized despite being medical cannabis becoming legal in July 2017. Also keep in mind that some studies indicate that up to 20% of all prescriptions in the U.S. are written “off-label”, effectively increasing Khiron’s market beyond official bounds.

Furthermore, the Mexican government established guidelines for the sanitary control of cannabis and its extracts. These guidelines—announced November 5th by the Federal Commission for the Protection of Health Risks (COFEPRIS)—establish a framework for the Government of Mexico to form a licensed cannabis market. Khiron is currently completing site inspections, including testing plants and extracts for final certification.

Given its costs advantage vis a vis Canadian suppliers and Mexican connections, Khiron is a prime candidate to emerge as a main extract supplier within the country.

Final Thoughts

Given Khiron Life Sciences extensive run (↑53.33% in the last three sessions), nobody is advocating jumping-in indiscriminately here. But with the 3rd and 5th highest volume traded days coming in back-to-back sessions recently, the market is clearly energized by unfolding catalysts in KHRN stock. As we’ve been saying for months, the company is uniquely positioned to capitalize on medical cannabis usage throughout Latin America because of its grass roots engagement/focus of physicians throughout the region.

The addition of Mr. Fox brings everything together, as the credible cannabis hombre medical providers can gravitate towards—not some Anglo-American suit from some big-pharma conglomerate nobody can pronounce. The market is anticipating future Mexican market dividends, which in our opinion, have more chance of materializing than not.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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