Khiron 2019 Site Tour: The King of CPG in Latin America
Khiron Life Sciences Corp (TSX.V:KHRN) (OTCMKTS:KHRNF) CEO Alvaro Torres told our film team in early 2018 that “Khiron is coming.” This time he changed his choice of words to “Khiron has arrived.” A bold statement for a company that has been waiting for their opportunity to shine – but the wait is quite possibly, nearly over. The passing of the final regulations for the distribution of medical cannabis in Colombia are in the process of passing. Other populous Latin American nations with progressive agenda’s are also imminent. Khiron is in a unique position to benefit the most given their first-mover advantage, ownership of clinics, and their willingness and openness to work with and help define the regulation for Colombia. The market potential market across LATAM is huge (over 600 million), the cosmetics market has even bigger reach for the company worldwide and they are also getting into the CBD pet-product space to which there are over 200 million dogs and cats in Latin America.
Our team was taken on a tour of their new offices in Bogota as well as their pop-up shops and presence in the biggest cosmetics retail stores in the country. From there we went to their cultivation and processing facility in their sizeable rural lands away from the city. What stood out the most was the emphasis on strategy and strategic thinking. The brain-trust at Khiron consists of many lawyers, physicians and brand strategists. The reason for this at least in part- was to secure their position the moment the first patients are able to purchase cannabis as a medicine. We went to one of their clinics which is a key strategic move by the company. Why would they want to own clinics? Because in Colombia and other Latin American nations, they go by the quota system which in essence means in order for you to cultivate cannabis (or other pharmaceuticals) you need to demonstrate that in no uncertain terms, there are patients waiting to use it. Owning the clinics, is owning data and having a customer base that is built-in the moment the government gives the go-ahead which could literally be at any moment. The other key strategic move was to work so closely and cooperatively with the government. If sales were to begin today, Khiron would have the only approved products to sell. This is because they helped define the procedures and processes to be compliant and have a vast network of physicians who are aligned with the company.
The end of 2019 and into 2020 are going to be very interesting times for the company because in their words – when the regulations pass it means for them “instant revenue” for them, which presumably will grow aggressively from the there.
Alvaro Torres (CEO): When we started this company, everybody was talking about the potential of Colombia as a low-cost agricultural centre. So, we have 12 hours of sunlight, we have low-cost labour, therefore, we have to be able to manufacture this product cheap for exports. And that’s a very valid theory, that as a Colombian, we sell coffee at $0.80 a pound. Downstairs we have a Starbucks, and they sell that same coffee for $4.00 a cup.
So, I don’t want to be in the commodity business; I want to be in the business where every year you get re-traded on your price. I want to be in a business you’re building a brand. That brand allows you to introduce new products, have more innovation, and that innovation will drive, also, the ability to create value.
Juan Diego Alvarez (Regulatory VP): The company has focused its strategy in the obtainments or in the development of clinical protocol to attend patients.
Rodrigo Duran (CPG Manager): As you may know, Khiron is the only company that owns clinics.
Juan Diego Alvarez: The main point here is that you cannot cultivate if you cannot prove that you have the patients to actually provide a legal product. So that’s why the doctors can only prescribe Khiron.
Martha Edith Oyuela (Health VP): In our Clinics we currently serve over 100,000 patients per year. Approximately over 1000/month are potential cannabis patients.
Rodrigo Duran: We are ready, and we’re only waiting for the guidelines that should be published in a month, to start delivering the product to patients.
As soon as we have these guidelines published, we’re going to have instant revenue.
Paula Martinez (Neurologist/Epileptologist): Usually patients get to see their physicians just for the disease. Definitely, our philosophy at Khiron is around the patients’ well-being, and I feel that medical cannabis is part of that focus for the integral part of a human being.
And we’re collecting data to be able to show Colombia, Latin America, and the world, evidence that this is useful.
Alvaro Torres: Observation studies that will then help us develop new products, and this is just within our clinics, right? What we’ve done the last two years is educate a lot of doctors in our medical cannabis program, and so medical cannabis will land in Colombia very soon. Very exciting times.
Alvaro Torres: A greenhouse like this can produce enough cannabis for 50,000, 60,000 patients – 8 to 10 tonnes of cannabis. This is our production capacity: it’s about 8,000 square metres. If you were to look at this from this point of view, you would see another 15 hectares that way, which is our ability to expand.
This is the extraction lab. When we bring doctors to see this facility, they really get a sense that what they consider to be marijuana is not the same as medical cannabis.
It’s a beautiful building. Now it’s not just the model of the render, it’s a reality, and it’s actually working.
Juan Diego Alvarez: Beauty products in Latin America, it’s huge.
Alvaro Torres: And so now, what we’re starting to do is launch the first cosmetic product that’s approved by IBIMA, and we did that with Kuida.
Elsa Navarro: Fedco is the biggest beauty retailer in Colombia, and for us to be here is amazing. So it’s to be competitive next to brands as the ones that you are going to find here in this big store.
It’s been an introduction process to teach the consumer. The first question always is, ‘Does it smell? Is my husband going to say that I can smell, like, pot?’ The smell is amazing.
Another amazing thing about the brand is that we have a complete portfolio. If you maybe have dry skin, you can complement it with the daily moisturizer.
One of our top sellers, the eye contour. It has a really fast effect that can de-puff. Actually, it’s a favourite for guys; they’re knowing how to handle the product and to apply it.
You finish your routine with our top seller: it’s the scrub. Usually, you wouldn’t try a scrub in a demo, right? Well, this is non-washable. You want the CBD to get into your skin and help with all the renewal of the cells. It’s a new concept, it’s cool!
Alvaro Torres: We have to educate consumers on what CBD is. So we started developing all these pop-up stores all across Bogota and Colombia, to start having that experience.
Elsa Navarro This is one of our biggest strategies, to be here to answer the questions and get them testing the product. We’re talking about $130 billion market for the cosmetic worldwide, and we’re trying to reach it with a new and different concept for cosmetics.
Alvaro Torres: Then you start seeing a lot of interest, and then you start thinking, well, maybe this could be something that we could sell abroad: Europe, the UK, United States.
Khiron has arrived. We are in full force, and now trying to start to understand how we can actually, you know, take over the world, I would say.
Juan Diego Alvarez: We have changes in Mexico, in Peru, Uruguay and Brazil, Chile, all the different categories of products are opening.
Rodrigo Duran: Addressing the Latin market, more than 600 million consumers and 200 million pets – a lot of them dogs and cats
Luis Chavez (Country Manager, Mexico): In Mexico next year, we will have new regulations in place.
Luis Marquez (Country Manager, Peru): In Peru, we are excited about the local regulations.
Rodrigo Azocar (Country Manager, Chile): Chile, happen this moment important market of medicinal cannabis.
Agustina Loinaz: Uruguay is a member of the MARCOSUL, which is a trade bloc which gives benefits for entering product to Brazil, one of the most exciting markets, and also to Argentina and Paraguay. And also, recently, the MARCOSUL trade block assigned an agreement with the European Union giving benefits.
Rodrigo Duran: According to Agrimonitor, in the clinics and pharma side, we have a $43 billion market opportunity in Latin America. In the skincare business unit, market of $8 billion, and in the CPG market, that includes pets, food and supplements, we’re looking at an opportunity of $19 billon in the region.
Alvaro Torres: Patients will be able to spend, in Colombia, an average of $550 a year. If you’re talking about a country that has 6 million potential patients, then you’re talking about $3 billion worth of sales.
Now, what we’re trying to work on, which is sort of the holy grail of Khiron 2020, 2021, is to be able to convince insurance companies that this is an appropriate product for them to cover. There’s a lot of economics there for both parties, and that will happen once we start to, you know, prescribe patients and start showing the evidence, and it’s just a matter of time.
And that same model that I have been describing, and you guys know about it because I’ve been talking about it for two years – that’s the same model we do all the way down from Mexico to Argentina. So, exciting times.