Cannabis Production in Colombia’s Emerging Market
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Khiron Life Sciences Corp. (TSXV:KHRN) is a vertically-integrated medical cannabis company fully licensed to conduct its core operations in Colombia. The first Colombia-based cannabis company to be listed on the TSXV, Khiron Life Sciences is also positioned as a first mover in the most advanced regulatory environment in Latin America.
“Being approved for listing on the TSXV just goes to show that Colombia’s emerging cannabis market shows potential for investors as a reliable and safe jurisdiction,” said Khiron CEO Alvaro Torres.
In Colombia, Khiron has, as a fully-licensed producer, began production in its 80,000-square-foot facility located three hours away from Bogota. The facility has a yearly production rate of 8.4 tonnes, which will be processed so as to develop the company’s oil and tincture products, inclusively for skin and body care. Khiron has also been registered by the Colombian Agricultural Institute (ICA) as an agronomical unit, a significant step for commercializing medical cannabis products in Colombia.
The company is in the process of developing its first clinic, which will open in late 2018 in Bogota, providing patients with access to informed physicians and Khiron products.
Understanding the potential of Latin America’s emerging economies, particularly as countries like Mexico, Argentina and Brazil have established cannabis-friendly policies, the company plans to deploy its business model across the region, helping to address the unmet needs of an estimated 68 million people that could benefit from cannabis-based treatments.
The Khiron management team brings extensive expertise in the pharmaceutical and agricultural spaces, including CEO Alvaro Torres, who also brings years of experience working on Colombian projects. The board of directors also includes a previous president of Mexico, Vicente Fox Quesada, who is a strong advocate for cannabis legalization. Using existing relationships and focusing on enhancing public education around cannabis, the management team is focused on engaging medical associations and key opinion leaders, while also sponsoring medical and scientific conferences aligned with their market interests. Management and the board are also significantly invested in the company, holding over 30 percent of shares.
- First market entrant in emerging cannabis market of Colombia
- Vertically-integrated model fully licensed for cultivation and production
- Potential market size of 6 million patients in Colombia
- Established Phase I facility in Colombia with production rate of 8.4 tonnes per year
- Plans to deploy business model across viable Latin American jurisdictions
- Board of directors includes past Mexican president Vicente Fox Quesada
- Experienced management team with insight into pharmaceutical and agricultural industries owns over 30 percent of shares
Cannabis Production in Colombia’s Emerging Market
As an emerging market in the cannabis space, Colombia is at the forefront of cannabis policy-making in Latin America. In December 2015, a decree was signed by the president for the legalization of medicinal cannabis. Since then the country has continued to advance its policies, most recently setting its sights on becoming a global cannabis exporter by licensing local producers for exportation of plants with both low and high THC content.
From a geographical perspective, Colombia is particularly favorable because of its desirable weather conditions. As the country sits near the Equator, there is natural light for approximately 12 hours a day for the whole year, making it easy to harvest across the entire year.
A country made up of 49 million people, Colombia has 6 million potential adult patients that could use cannabis as part of their treatment for chronic pain, insomnia, anxiety, depression and more. This provides significant opportunities for companies like Khiron, which is making strides as a first mover in the Latin American nation.
Khiron’s Business Model
Khiron’s business model is tied intrinsically with developing valuable products for a loyal patient base. In order to do this effectively, the company has developed a comprehensive market entry strategy which focuses primarily on fully understanding market needs and regulatory environments before actively engaging doctors and patients.
Market entry strategy
Khiron’s strategy involves developing an in-depth understanding of the regulatory jurisdiction as well as assessing market needs and potential, as they have done in Colombia. This is followed by establishing a local team and leveraging its relationships, taking the initial steps of establishing the Khiron brand amongst industry peers.
In Colombia, the company has also begun educating and interacting with local institutions and medical associations, while also engaging key opinion leaders in the space. To this effect, Khiron co-sponsored the first medical cannabis symposium in Bogota alongside the Colombian Neurological Association, with over 400 physicians in attendance. The company was also an exclusive sponsor for a medical panel for Colombia’s Pain Association (ACED), which hosted 1,200 members.
Khiron is also contributing to public education around cannabis by contributing to Latin American publications and by developing an e-learning platform that provides online modules, information and training for medical practitioners.
The final step for the market entry model is the development of distribution channels. For Khiron, this will take the form of Khiron clinics, where patients will have access to physicians as well as to the company’s proprietary tinctures and oils.
While currently in the process of deploying its model in Colombia, Khiron has its sights on Latin America as a whole. The region has a total population of 620 million people, 68 million of which could potentially benefit from the use of medicinal cannabis as part of their treatment. Between 2015 and 2017, countries including Mexico, Brazil, Argentina, Peru and Chile have all established policies allowing the use of medicinal cannabis, hemp or CBD products, making them potential targets for Khiron’s business model.
Khiron’s medium-term plan is to acquire 1 million patients across Latin America within the next five years. Taking the first steps towards this goal, the company is one of the hosts for the first medical cannabis conference in Mexico.
Targeted therapeutics approach
As part of its entry into the Colombian market, Khiron is in the process of establishing its first clinical facility in Bogota. Due to open in late 2018, the clinic will provide patients with access to three physicians with the capacity to treat 1,600 patients per month. The clinic will also be supplied by Khiron’s products and will as such be responsible for the bulk of the company’s revenue streams.
The clinic’s mandate will be to build a patient and doctor database that can then be used to develop a pipeline for future products. As such, it will help generate brand awareness and patient loyalty.
Once the first facility is up and running, the company plans to roll out this model across three other major cities by 2019.
As a vertically-integrated company, Khiron cultivates its own cannabis plants, which are then processed for the production of its oil and tincture products. The company’s production facility consists of 80,000 square feet of cultivation space, with the capacity to produce 8.4 tonnes of dry flower per year. Khiron is currently completing site inspections for final certification on the property. Once it receives its final approval from the Technical Quotas Group, the company will be able to begin commercial production of CBD strains.
The facility is located three hours away from Bogota, and is strategically located as it has access to low-cost electricity and free water, and has an attractive lease rate of $10,000 per hectare per year. This, as well as the low cost of labour in the region, all means that the cost of production is quite low at $0.35 per gram, making it a profitable operation despite the lower price point of cannabis in Colombia when compared to North America.
The company has also recently expanded its property to cover 17.5 hectares of agricultural land, giving the company the opportunity to expand its cultivation area by four times. Once developed, the total area is expected to produce 100 tonnes of dry flower for extraction per year.
As a fully-licensed producer, Khiron is able to cultivate and produce both low and high THC plants, as well as distribute its product both domestically and internationally. Upon receiving its licensing, the company began cultivation in December 2017.
In June 2018, Khiron was registered by ICA as an agronimical unity. This positioned the company to receive the first allocation of quota to begin commercial cultivation of high THC strains and to cultivate CBD strains that are not subject to a quota. As part of the evaluation, the Colombian public entity conducted a site inspection and verified its readiness for commercial production. ICA will continue to evaluate Khiron’s 19 strains for final approval for commercial cultivation and production.
“This authorization positions Khiron to be the first medical cannabis company to bring products to market in Colombia. Our facility and mother plants are ready to be utilized to commence commercial cultivation and production. We are focused on expediting our timing to market, while ensuring the highest standards of product quality and consistency. Khiron, as the market leader in regulatory knowledge, has again demonstrated our understanding of how to work with the various government entities in the contexts of the regulations for medical cannabis in Colombia,” stated Torres.
Khiron is the first licensed company in Colombia to receive authorizations from the National Food and Drug Surveillance Institute (INVIMA). In May 2018, INVIMA, a level-four World Health Organization agency, gave Khiron the authorization for the production, sale and export of four CBD-based products that will form part of Khiron’s wellness business unit. In July 2018, the company then received further authorizations for four more such products. These products are specifically designed to target skin care needs in a market that is currently estimated to be $530 million annually.
The CBD product line will cover each stage of a daily skin-care routine, from early morning to pre-sleep. The first product is expected to be launched by the end of 2018, with initial distribution around Colombia.
Partnerships, Strategic Relationships and Acquisitions
As the company has been developing its model, it has worked with specialist cannabis consultants to garner insight on site design, growing practices, extraction and formulation processes, informational packaging, logistics and more.
With regards to active partnerships, Khiron has signed a memorandum of understanding (MOU) with an Israeli company that has a portfolio of 11 medical-grade strains with genetic history. This partnership, if fulfilled, provides Khiron with access to a full spectrum of CBD and THC genetics as well as access to a leading network of scientific research and key opinion leaders.
Strategic acquisition of Colombia’s leading health care network
Khiron has entered into a non-binding letter of intent (LOI) to acquire the Latin American Institute of Neurology and the Nervous System (ILANS), which is one of the most well-known, fastest-growing health service provider networks in Colombia and Latin America. The organization represents approximately 100,000 patients, most of which are located in Colombia. Once the acquisition is closed, Khiron will have access to approximately $10.5 million in revenue and $1.8 million of EBITDA.
“This acquisition represents one of the most significant developments for Khiron to date,” said Torres. “We will secure a significant revenue stream from patients within our target market and see multiple opportunities to further scale revenue and drive profitability from introducing medical cannabis to ILANS patients.”
Khiron’s expanding network of patients is also supplemented by other strategic alliances with the Colombian Association of Internal Medicine (ACMI) and the Colombian Association of Neurology (ACN).
Alvaro Torres—CEO, Co-founder and Director
Alvaro Torres has over 15 years of experience in Colombian infrastructure projects and project finance, management leadership and strategy, engineering, and M&A. He previously grew SNC-Lavalin Colombia from inception to a 2,000-person corporation. He has also led growth strategies for engineering projects of over $1 billion in capital expenditure.
He has a BEng and MEng from the Rensselaer Polytechnic Institute as well as an MBA from Georgetown University.
Chris Naprawa brings extensive institutional capital markets experience to the company. Prior to joining Khiron, he was partner at Sprott Capital Partners, head of equity sales at Macquarie Canada, head of equity sales and trading at Dundee Securities and managing director at Primary Capital. He was also previously founder and CEO of Startcast Solutions, a company successfully sold to a large telecommunications company. He holds a Bachelor of Arts from Queens University.
Andres Galofre—VP, Commercial
Andres Galofre has over 15 years of experience in pharmaceutical marketing and brand management. He has established distribution channels for ethical drugs and consumer products. His past experience includes product brand management at P&G, Kimberly-Clark and Pfizer, as well as the launch of Advil in Colombia, where the product rose to 28 percent of domestic sales. He has managed business units with annual sales of $100 million.
He holds an MBA from La Trobe University and a BBA from CESA.
Darren Collins has over 12 years of experience in finance and capital markets with investment firms and private issuers. He has been involved in over $1 billion of transactions involving emerging companies, including mergers and acquisitions, debt and equity financings, and joint venture partnerships. His public issuer experience includes corporate governance, financial management and budgeting, and public listings.
He has a BComm in finance from Dalhousie University.
Juan Diego Alvarez—VP, Regulation
Juan Diego Alvarez is a professor of law at the Universidad de Los Andes with over 10 years of legal experience. He is considered to be an authority in Colombian medical cannabis regulation.
He has an LLM from Columbia University, a JD from Tulane University and an LLB from the Universidad de Los Andes. He is also a PhD candidate.
Ana Maria Borda, PhD—Scientific Manager
Ana Maria Borda has over 15 years of agricultural experience in Colombia and across South America, through which she has developed in-depth knowledge of regional growing conditions. She is an expert in the areas of biology, chemistry of biological systems, biochemistry, floriculture production and business, and packaging science.
She has a PhD in horticultural science from the University of Florida, an MSc in agricultural studies from the University of Queensland and a BSc in biology from the Los Andes University.
Paulo Vega—VP, Medical
Paulo Vega has over 25 years of experience as a neurologist. He is an advisor to pharmaceutical businesses in drug and related business development. He has also been an officer for multinational and domestic pharmaceutical corporations. He has noted expertise in leading MD engagement, drug development and pharmaceutical product growth as well as specific experience in validation studies and the approval process at INVIMA.
He has an MD from the University of Rosario and an MBA from the Deusto Business School.
Sydney Himmel—Chairman of the Board
Sydney Himmel has over 30 years of corporate experience in capital markets. He is an expert in project development, board governance and finance. He has been an executive and director at public companies, while also developing institutional sales and research experience with notable investment banks including Merrill Lynch Canada Inc. and TD Securities.
He has a BSc (Chemistry) and a BA (Finance) from the University of Toronto and received his Chartered Accountant designation in 1981.
Vicente Fox Quesada—Strategic Advisor, Brand Ambassador and Director
From December 2000 to November 2006, Vicente Fox was the 55th president of Mexico. Prior to that, he was the CEO of Coca Cola Latin America. He is the founder of Centro Fox, a non-profit foundation dedicated to serving communities in Mexico and Latin America. Through his various business and community interests, he has been a high profile and respected advocate for the legalization of medical cannabis throughout the Latin American region. He currently services on the board of directors of a leading US-based cannabis publication advocating legalization.
Dr. Maria Fernanda Arboleda—Medical Director
Dr. Arboleda was most recently a Supportive Cancer Care and Medical Cannabis Post-Doctoral Research Fellow in the Oncology Department, Supportive and Palliative Care Division at McGill University in Montreal. Anesthesiologist, Pain and Palliative Care Physician of the ‘Universidad Nacional Autónoma de México’ (UNAM), Dr. Arboleda will help oversee Khiron’s medical cannabis product development program and help shape the company’s educational and training strategy for health care practitioners.
Mark Monaghan has over 25 years of investment banking and merchant banking experience as an advisor, founder and board member. He was previously a partner / senior executive of UK and Canadian investment and advisory firms. He is currently a managing partner of Panama-based Dalvay Capital Corp., an investment and advisory firm focused on LATAM growth opportunities. He has been integral in completing billion-plus worth of capital raises and M&A transactions as principal, board member or advisor.He has a BA in Economics from Queen’s University and a BComm from the University of Windsor.
Peter Simeon has over 15 years of experience in corporate, commercial and securities law. He is a partner in Gowling WLG’s Toronto office and focuses his practice on corporate finance, mergers and acquisitions and structured products. He works closely with issuers, underwriters and other corporate clients, with extensive experience working with cannabis-focused issuers.
He has a BA in Political Studies from Queen’s University and an LLB from Osgoode Hall.
Alvaro Yañez has over 15 years of commercial and legal experience in Colombia and internationally. He is currently the legal manager of Pacific Exploration and Production, a Canadian oil company considered to be one of the most important independent oil companies in Latin America. His past experience includes roles with legal firms including Yañez y Asociados and in Arrieta, Mantilla y Asociados.
He has an LLM in corporate law from the Universidad del Rosario.
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