Khiron Life Sciences Corp (CVE:KHRN) Entering Emerging Markets
Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH) President Chris Naprawa believes Mexico’s rapid move to legalize cannabis is the biggest news to hit the sector to date. With a population of 130 million people, the Mexican market is significantly larger than its Canadian counterpart but lacks the competition. That’s good news for Khiron, as the Colombia-based company already has a considerable footprint in Latin America. In November, Khiron extended its partnership with Farmalisto, the region’s leading drug store, into Mexico to distribute Khiron’s wellness brand Kuida. Khiron has brand exposure to 200 million people in Latin America and the company recently made announcements that several of its SKUs are now available in Chile and Peru.
James West: Chris, welcome back!
Chris Naprawa: Thank you, James.
James West: Things are really starting to pop for Khiron across Latin America, and I’m pleased to note that I had a conversation with Vicente Fox a couple of weeks ago, and Mexico is really coming on strong.
Chris Naprawa: It sure is.
James West: And one of the things I want to focus on here, because it seems to me the audience doesn’t really get how Khiron is kind of doing this to all of Latin America. And so starting with Mexico, what is the client load going to look like in Mexico, for what types of products?
Chris Naprawa: Well first of all, I think with Mexico, when we’re talking about Mexico, we’re talking about probably the biggest news that’s hit the cannabis business industry to date. You know, there’s a country of 130 million people, there’s a massive middle class, and it’s not going to have the same level of competition that we saw here in Canada, with only 35 million people.
So this is a massive, massive change in the cannabis landscape, and I think it’s one that everybody should be paying very, very close attention to.
James West: So and Mexico has legalized cannabis for both recreational and medical purposes at this point?
Chris Naprawa: So in Mexico, over the last couple of months, we’ve had three seminal events. One, we’ve had a Supreme Court ruling that ruled that it was unconstitutional to deny people access to cannabis; we had the outgoing government provide guidelines for cannabis legalization, which was primarily medical; and then the incoming government that’s now in, with AMLO, tabled legislation for full recreational, cultivation, import/export.
So they’re moving very, very fast, and I think that also characterizes the entire regions. Things are changing very, very quickly, and every jurisdiction that legalizes is having pretty much a positive experience with it. You can’t keep denying adults something that’s safe and something that they want, and certainly on the medical side, provides a lot of wellness for people.
James West: Yeah, right. So that’s, you’re distributing through a partnership with a pharmacy chain in Mexico?
Chris Naprawa: We’ve announced our first few products, and then we’re going with Farmalisto, which we’re also using in Colombia. I would expect you to see more skus from us, more partnerships, and more distribution.
James West: Okay, so 130 million people in Mexico. Now, you’ve also got things moving forward in Brazil.
Chris Naprawa: Yeah. So Brazil, we haven’t announced anything yet, but we’ve had feet on the ground there. Brazil’s another massive market of 240 million people; they’ve recently just had an election there, so things are changing very, very quickly. It’s our personal view that the region is favourable for cannabis legalization, and on the medical side, there’s already some 900 doctors trained on medical cannabis in Brazil, but that’s out of 450,000 doctors.
James West: Wow. So then if we were to tally up Khiron’s exposure into the markets it’s in – Colombia and Mexico now, as well as the one that it’s making moves into, what’s the total sort of exposure for the brand?
Chris Naprawa: Well, we have exposure to well through 200 million people right now. So we’ve made announcements that we’ve had products accepted or approved in Peru, we announced our partnership with Foundation Dea in Chile, so expect more announcements in Chile, as well. Chile is a smaller country of 17 million people, but it has four times the GDP per capita than Colombia, so it’s an important market for us.
James West: And Peru?
Chris Naprawa: And Peru is a market of some 32 million people, and we’ve announced our first few products there. So we’ll get some more skus announced there, and that’s primarily on the Kuida line to start.
James West: Hmm, interesting. So is it shaping up that the topical, nutraceutical, cosmeceutical product line is going to be sort of the first wave of sales for Khiron across those large jurisdictions?
Chris Naprawa: I think any company that’s being successful in the cannabis business today has a very tight view on the regulatory environment in the markets where they operate, and I think that’s our case. So in our case, with our regulatory view, we’re trying to sell what we can, when we can, where we can, and we’re entering those markets as quickly as we possibly can.
So with the Kuida line in particular, which is our wellness line that’s being very well received in Colombia, it’s very natural for us to progress that into other markets.
James West: And so, how about your production capacity? Is that scaling alongside your distribution potential?
Chris Naprawa: Yeah, we’ve got ample production capacity right now for our current market, and you know, many of our competitors, James, as you know, are focused on low-cost cultivation for export into foreign markets. We’re happy to have low-cost cultivation, but we’re very much focused on selling branded products, sales execution, brands, in our reginal markets of 620 million people. And I hear some amazing numbers on how cheap everyone can grow it in Colombia and other markets; maybe we’ll buy some from you, you know? Because our demand is going up for those branded products, where we enjoy those really high margins.
James West: Right. So that’s interesting. So Colombia has got like one of the lowest perceived costs of production globally?
Chris Naprawa: Yeah, absolutely. It’s an equatorial region, it’s a market that is well-suited for agricultural export, palm oil, cocoa, coffee, of course, from Colombia. So all the regulatory environment that is there, the infrastructure is there to do that. And I think some people might be successful at that business.
But our business is servicing the people in the markets where we operate, and to do that, we’ve had to expand very, very quickly. I think our numbers, we’re just under 80 people now, and the business, plus our ILANS acquisition, which we announced that we closed that and got TSX approval for that last Friday.
James West: Okay, so sounds like the plan is to be vertically integrated across a few horizontal portals: cosmeceutical, medical, consumer packaged goods ultimately in the food and beverage space, as well?
Chris Naprawa: I think if there’s a market that we can be in, that we think we have a legitimate shot at being successful in, we’ll be there. And we’ve built an amazing regulatory team, scientific development team, agricultural side of course, and now sales and marketing, and really we’re making a very strong push into all those markets simultaneously. I know it sounds like a lot, but we’re able to replicate a lot of the work we’ve done in Colombia; we’ve been there for two years now, over two year. We’ve built an amazing base, we’ve got just an absolutely elite team of people based in Bogota, and we’re exploiting the rest of Latin America with that team.
James West: Sure. So what does this mean for the financial picture for Khiron in 2019?
Chris Naprawa: Well, we’ve never looked better than we look right now. We’ve accelerated our warrants this last quarter, we have $25 million in cash, which is more than the company has ever had, and you have to remember, we’re operating in very low-cost operating environments. It’s not the same as what people are trying to do up here in Canada.
So we’re really pennies on the dollar on the operating cost, that have allowed us to expand very, very quickly. And we’re a Colombian company, we’re a Colombian-based company; we don’t have a whole bunch of executives up here. My entire office sits in my briefcase right behind you, and we move around very quickly around here. So everyone is being hired in Colombia, in Santiago, in Mexico City and other places in Latin America.
James West: Okay, great. And tell me, what are the big milestones that you expect to hit in 2019?
Chris Naprawa: ell, 2019 is going to be a big year for us. We just closed our ILANS acquisition; that clinic business gets us a lot closer to 100,000 patients right there in Bogota. I think you might expect us to replicate that model elsewhere. We’re going to have our first prescriptions go out the door in 2019, we’ve been guiding people towards that, so look for that; that means that we’ll be cultivating, harvesting, processing, and delivering prescriptions on that.
We’re moving our Kuida line from multiple jurisdictions, and we’re going to get into a couple more jurisdictions as we go. So a year from now, maybe we’ll have 300 or 400 people. And you know, the big differentiator for us also, compared to a lot of companies in our region, is that we’re actually an operating company. We actually have sales now; you know, we have to start accounting for that, and we’re hopefully going to do very, very well by our shareholders this year.
James West: All right, Chris, we’ll leave it there for now. Thanks for joining me again.
Chris Naprawa: Thanks, James.
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