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 for the input.
Chris Naprawa: Thanks, James.
