Khiron Life Sciences Corp (CVE:KHRN) President Discusses Mexican Legalization and Market Potential
Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH) President Chris Naprawa shares details of Mexico’s legalization process. He is particularly encouraged by the addition of adult use legalization in proposed legislation, as well as the inclusion of all product forms. This is an advantage for Khiron, as the company has been developing a line of cosmeceuticals. It also has an existing Mexican retail distribution agreement for its Kuida products and a new partnership with Dixie Brands Inc (CNSX:DIXI.U) (FRA:0QV) (OTCMKTS:DXBRF). Naprawa believes that Khiron’s joint venture with Dixie is a game changer for both companies as it brings Dixie’s extensive portfolio of products and recognized American brands to the Mexican market and its considerable tourist population. Khiron has also made significant inroads in Mexico’s medical cannabis space. Naprawa discusses the company’s support from Mexico’s medical community and describes the success of Khiron’s recent medical symposium on the efficacy of cannabis for physicians in Mexico.
Narrator: Khiron Life Sciences, Corp. is listed on the TSX Venture under the ticker symbol KHRN.
James West: Chris Naprawa joins me now, the President of Khiron Life Sciences, trading on the TSX Venture under the symbol KHRN. Chris, welcome back.
Chris Naprawa: Thank you, James.
James West: Chris, a bit of a perplexing piece of – I’m not going to call it fake news, I’m going to call it junk news, because it misreports on a situation going on in Mexico that has nonetheless catalyzed some people to interpret it as negative in terms of Khiron stock, and the shares are under a bit of pressure. This article that was actually, interestingly enough, first published in an Argentinian publication reporting on a Mexican government event which, in any language, is a recipe for disaster, but they’ve also misinterpreted the concept of a product review based on a normal governmental process and turned it into the word investigation – which I don’t know whether that’s a different between Argentinian Spanish and Mexican Spanish. I don’t think so; it sounds more to me like somebody’s trying to encourage a short attack on the shares in the company.
Chris Naprawa: Well, I think something’s definitely lost in translation here, James. You know, the product review that’s going on right now is something that we saw in Colombia, it’s something we saw in Canada with delays – even in the German market, things changed as they were trying to figure out their legal legislation there.
So we had an old government that approved, I think, 57 products, of which we were three of them. We’ve got a new government that is now reviewing that, because the scope of the legislation has changed a great deal. You know, I think last time we talked, this is about not only medical and cultivation and import/export, it’s also including adult use in Mexico, and that is a much broader scope, and those products will be reviewed. And we expect that, and this is a process that we’re comfortable with, that we understand, that we’re participating with, and, you know, we’re not worried about, and we’re quite excited about.
When we talk about the adult use in Mexico, just thinking about the tourist market alone and the opportunity to be first there with recognizable brands that American tourists have, that would be a Top 5 state in the United States any day of the week, with millions of tourists that go there looking for recognizable American brands that they trust.
James West: So this means you’re going to be able to sell recreational in Mexico now, too?
Chris Naprawa: There’s no real opposition at all in Mexico right now. You know, we’ll wait and see what the final legislation actually looks like, but what was tabled was, as President Fox says, the whole enchilada. It’s everything, including THC and alcohol and edibles and everything. So we always wait to see what the last bit of legislation looks like, but both sides of the bench are very much in support. The voters are very much in support, and that’s something that we want to be well-positioned for.
James West: Sure. How soon till we know what that legislation is, and what kind of timeline until it’s actually being implemented, do you think?
Chris Naprawa: Do you know what, my original hope was that we’d see something by the end of last quarter. Now with these changes, I think it’s somewhere between, you know, the end of Q2 and the end of Q4, would be my best guess right now. But things are changing, things are moving very quickly, but there’s no opposition to the legislation. There’s no opposition to legalization. What we’re trying to figure out now is which part of the government will manage that process, which part of the government will approve products and regulate them and inspect them. So we’ll find that out very, very shortly.
But in the meantime, we continue to hire people. We just hired a fabulous country manager for Mexico, we’ve got people there right now. Maria Fernanda, who you’ve met, is there in Mexico, President Fox, of course. We just held the very first medical symposium for physicians there about three weeks ago in Mexico City; it was an unbelievable success. We’re holding CannaMexico that we’re co-sponsoring with Central Fox, the presidential library; that’s happening at the end of this month, 24th and 25th, in Guanajuato. We’ve got overwhelming support for that, and we’ve got a bunch of Canadian sponsors for that, and a bunch of Canadian guests coming down for that as well. And that’s going to be a great time to talk about all these issues. We’re going to have a regulatory forum at that time; everyone’s going to get to hear what’s actually happening in the real world in Mexico, and outside of Twittersphere.
James West: Sure. So some people question, you know, what’s the motivation of the Government of Mexico in legalizing cannabis, and I think that the obvious answer for anybody who’s watched El Chapo or anything like that, is the cartels are sort of at the apex of their reign, and the government’s very motivated to limit their ability to generate income.
Chris Naprawa: Well, I think the Mexican government around, also with governments around the world – as you know, I travel all over the place – the prohibition of cannabis, a) is ineffective in preventing whatever they want to prevent and 2), as it relates to the Mexican legislation with the first Supreme Court rulings that said not only is it unlawful to prevent people access to cannabis, but no one has shown that it does any harm. And of course, there’s studies in children and other things, but for adults that occasionally use cannabis, there’s absolutely no evidence that anyone’s been harmed. No one has been killed with an overdose of cannabis, and Matt Murphy, who’s on the DEA, would tell you that same story.
So you know, respectfully, we think the toothpaste is out of the tube and this is a global phenomenon, not only in Mexico but around the world, and we’ll see where the ultimate global platforms are built from. Are they built from Canada, are they built from the US, or are they built from elsewhere? And you know, we think we have an equal shot as anyone of making a very big impact on the global cannabis market.
James West: Right. So in terms of the Mexican market, though, this is – I mean, I’m always sort of mildly amused by people who say, Yeah, we’re in California, the largest market in the world. I’m like, yeah, well, that’s the largest market in the world if the rest of the world doesn’t exist outside of California borders, because actually, the state to the south that you share a border with is actually a much larger market.
Chris Naprawa: Yeah. If you look at the Mexican market, pick another product category – cell phones, beverage, automotive, whatever – they’re kind of number 11, 12, 13, 14 in every single category in the world; why would this be any different? And if you include the tourist population, which is massive, and it’s a 365-day tourist population in Mexico, that’s a really, really attractive market to us, as well.
On the medical side, the doctors, you know, if you were down at our conference, there’s overwhelming support from the medical community, from the press, from the medical associations, of which we’ve already signed up several. So you know, we’re excited about Mexico. You know, people want to come out with false information – there’s not a whole bunch we can do about that, but I’ll tell you, our commitment to Mexico is 100 percent.
James West: Sure. The idea of encouraging false reporting in an effort to achieve a profit from a short strategy is something that we’ve seen a few times in the last year or so, and without exception, it has resulted in a failure for the longer term investor. And in fact, these things constitute a real risk, and it’s amazing that we don’t prosecute misleading information from the negative point of view, because I mean, how many investors are going to be suckered into actually going short on a stock, only to find out that no, this stock is actually just gathering momentum for a next move higher.
Certainly, you’ve got catalysts in the pipeline, both in Mexico, more broadly in Latin America, but also in the rest of the world, that are going to create sort of an image of this in the rearview mirror as a comical event executed by a carful of clowns.
Chris Naprawa: Yeah. I think, listen, when I was on The Street, going short, a hyper-growth small cap is not exactly a great idea, and you’d think these guys would get tired, but they don’t. And you know, for any licensed professionals out there that are knowingly disseminating false information, you know, they put their own careers at risk. But you know, we’re not trying to combat these guys; we’re just trying to tell our story, and we’re trying to encourage people to pay attention to the broader global aspect of the cannabis industry and our positioning in that, and why we think we’re going to be successful.
And of course we’ve, you know, just in the last nine months, we’ve acquired two companies, we’ve done our JV with Dixie Brands, which is an amazing company. We’ve entered five different countries, we’ve done three financings, we’ve grown our company from 30-odd people to over 250, and, you know, this recent event at Cosmoprof in Bologna, which is the largest cosmeceutical, cosmetic trade show in the world, 250,000 attendees…it was just absolutely incredible. And I think there we learned a lot about the European market, a lot about strategies and suppliers and how we can do better on that.
You know, I think we’ve told the world that that’s a place that we’re very, very interested in.
James West: Right. We’ve seen a lot of sort of latecomers to the public company sort of realm of cannabis companies that are making noise about being in Colombia, but so far nothing credible. Nothing has really gained any traction; it’s all just basically, you know, a case of the latecomers who are always the last ones to the party, and always looking to make hay out of the success of the originals, the incumbents.
Now, is there anybody in Latin America anywhere that constitutes real competition for you in terms of where they’re at in the evolution of their footprint?
Chris Naprawa: I think long term, you know, the global pharma, global CPG, that’s really who we have our eyes set on long term. You know, when people now just entering Colombia, we’re already in Peru, and we’re already in, people coming to Peru, we’re already in Chile. When they’re there, we’re already in Brazil and Uruguay. And certainly we are, there’s not a lot of people in Mexico yet, and they’re not really understanding that opportunity. And by the time they figure that out, we’ll be in multiple countries in Europe.
So you know, trying to pigeonhole us into this kind of low-class cultivator in Colombia, I think, is a mistake. We enjoy the fabulous, fabulous growing conditions in Colombia, the outstanding people, the low cost, the excellent export regime, but that’s not all that we have going on. We’re a multi-faceted company with real growth.
James West: Sure. So at this point in your evolution, which do you see being the bigger contributor in terms of revenue streams, the medical sort of ingestible side, or the cosmeceutical side? Because the cosmeceutical thing has really surprised me, at least, in terms of how big an industry that is, and how few cannabis players there are in it yet.
Chris Naprawa: Yeah. I think if you include our cosmetic in our broader category we call wellness, you know, part of our Dixie JV that brings in the Aceso brand that we can use all throughout our region is a fabulous, well-tested, tried-and-true brand, and formulations we can use; that’s a massive category. I think the trend towards CBD is an unstoppable trend right now. You’re seeing it show up everywhere.
So you know, we make the decision: do we want to be the input molecule that is, you know, fighting to the lowest price per gram? Or do you want to buy and grow brands with CBD that make a lot of sense for people? I think the numbers are clear; people want access to these products. Our experience at Cosmoprof in Italy a couple of weeks ago was a clear indication of that, and we’re really, really excited about it.
James West: Yeah. The explosion of popularity in CBDs in particular as just a daily supplement to one’s diet is one that I’ve got to say that I’ve embraced wholeheartedly for various reasons. And in Latin America, is it a case that the CBDs are regarded differently than THC products as one is more psychotropic than the other?
Chris Naprawa: Well, every market’s different. When you talk about Latin America, it’s a big place, but CBD’s been well-embraced for sure on the medical side, in most cases on the wellness side. THC less so in certain jurisdictions, but I think that’s just a matter of time in most places. It’s just a matter of time before all jurisdictions embrace that.
So when we think about launching products like Kuida and like others into our market of 620 million people, that’s an exciting proposition. You mentioned California, the biggest market in the world, also the most crowded market in the world, you know? So gain theory for us is, let’s focus on the people that don’t have anything to buy right now, and sell that to them. And you’ll see a flood of competitors coming after us, but by that time, we’ll have well-established distribution. You’ll see much more stores, much more brand recognition on our stuff.
James West: Sure. The best defense against competition is market share, isn’t it?
Chris Naprawa: Yeah, that’s right.
James West: Okay, so what other initiatives are we going to look for in 2019 in terms of Europe and the eastern hemisphere?
Chris Naprawa: Well, I think, you know, we have certain competitive advantages in certain places in Europe with language and culture and other things. So I think that makes it an easy entry point for us. I don’t think we have to do blockbuster deals to get into those markets; really what we’re looking for is access to markets and access to people, you know, and it’s all about people. Without people, you can’t execute.
So when we find a situation where we can enter a market, it makes sense for us if there’s synergies and we have people to help execute our business plan; those are the kind of deals I think you’ll see us do.
James West: And now in terms of the uptake from the institutional investment community, I’ve noticed that there are an ever-increasing number of interesting bids in the marketplace that suggest that there’s some real accumulation going on by some larger funds at this point. Is the acceptance of Latin American cannabis multi-vertically integrated producer and product generator something that the larger funds are starting to embrace, in terms of the international opportunity?
Chris Naprawa: I think when you talk to professional investors and you come to an agreement that this is an international opportunity and it’s about execution, it’s about people, and they look at different companies across the spectrum, and one is $10 billion and one is $350 million, and they have similar execution capabilities, similar accesses to capital, etcetera, and to people, you know, that’s a compelling investment to some people. And in this world, at this time in the market, you bet on the jockey. And when you have a world-class jockey like we have an incredible team, and we have an incredible opportunity, and we have a market cap that has the potential to go up.
James West: Sure. So among the compelling arguments for investing in a Latin American cannabis producer like Khiron, is the idea that a cost per unit of input will be much lower for any cannabinoids that are grown in, for example, Colombia, than they would be elsewhere in North America for example, where especially in Canada we’re dealing with ultra-high-tech, purpose-built greenhouse growing systems and very sophisticated systems, which makes the cost per gram much higher. I was interested to note that, in this recent round of financials reported by a lot of the North American producers, is that I’ve had no end of guys on the show saying that our all-in cost per gram of production is going to be below $1.00, and $0.80, and then the financials come out and it’s more like $3.00, $2.50, $4.50 – they’re way off.
So is that one of the compelling arguments at this point for you guys? I mean, on the one hand, it’s not the biggest component of the profit, is not necessarily derived from the commodity price savings, but in Latin America’s case, is that still a substantial compelling investment point, do you think?
Chris Naprawa: I think any product that you’re trying to sell, if you have low-cost components, it makes it more compelling. You know, the fact that we’re in a low-cost jurisdiction is a compelling reason to start a company there; I think it’s logically says that it’s a great place to grow a business internationally. But when you look at the legislation country by country in places where cannabis is legal, it still makes a lot of sense to have some form of cultivation or some form of facilities there as it applies to genetics, import/export, all that stuff. So we embrace the regulation where we are. At heart, our core competency is regulation, and if you don’t understand that, you can’t understand the markets.
So we want to expand – we are not a hub and spoke business. Our business in Brazil is going to be run by Brazilians. Our business is Uruguay is going to be run by people there, and in Mexico it’ll be run by Mexicans. And we’re trying to embrace all these different cultures differently. This is not a mother ship that’s sending everything out to the world, and I think at this stage in the game, that’s the only way to go, as things are changing so quickly.
James West: You bet. All right, Chris, we’ll leave it there. We’ll come back to you soon. Thanks
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