As much of the world focuses on the North American cannabis sector, innovative companies like Khiron Life Sciences Corp. set their sights on the as-yet untapped Latin American market. Based in Canada, Khiron was the first company to be fully-licensed to cultivate, produce, and distribute low and high THC medical cannabis in Colombia.
We caught up with Khiron CEO Alvaro Torres recently to learn more about the company, and to discuss the cannabis market in general. Khiron, who is preparing to be listed on the TSX Venture Exchange (TSX-V), also just announced that they would play host to Colombia’s medical community at that first-ever International Medical Cannabis Symposium to be held on Feb. 15 in Bogotá, Colombia.
Mr. Torres, thank you for taking the time out of your busy schedule to speak with us today. Can you give us a little background about yourself and how you personally became involved in the cannabis industry? I know you’re an engineer by trade?
I am an engineer yes with a master’s in engineering from RPI [Rensselaer Polytechnic Institute] in upstate New York and an MBA from Georgetown.
All my life I’ve been doing infrastructure and engineering, investment banking and building. I’ve managed large companies - I was CEO of two engineering firms. Two years ago I read about how the Colombian government wanted to legalize medical cannabis as extracts only. They wanted to create a new industry and diversify the country from oil and gas. When I was reading the news, the focus was mostly on how Colombia could be a low-cost producer for the world. It just struck me as odd because in Latin America we are very good at selling commoditized products. We are very good at selling coffee at $1 a pound, but we’re not very good at selling coffee at $5 a cup. So from that perspective, I started thinking what if instead of making another company that just sells low-cost cannabis, we come up with a value-added pharmaceutical-type company that sells in the domestic market.
We started talking about how Khiron should be more on the B2C side - talking to physicians and gatekeepers of patients, educating patients. Then we wanted to establish brand loyalty. We traveled around North America trying to understand different business models, and then in December of 2016, I met my Canadian Partners. They convinced me that the best way to front this idea was to go through Canadian capital markets. Then in February of last year, we founded Khiron in Canada.
Your company is one of the few with a license from the Colombian government to cultivate, sell and export medical cannabis from that country. Would you tell us about that dynamic and why you chose Colombia and the broader Latin American market?
Well, it's been very interesting because Colombia and Canada have been in similar sectors for a long time. Most mining companies are Colombian or Canadian. It has certainly been a challenge to present Colombia as a place for medical cannabis because of the perception most people have of our country.
How do you create a new market, because as you know the market in Canada has become a bit saturated? When you look at countries like Colombia, Mexico, and Argentina, it's a completely new opportunity, but it also has to be done by people who understand the culture of those countries. Starting in Columbia is fantastic because we have a strong relationship with Canadian capital markets. It’s just that investors in the cannabis space don’t know Columbia. We’ve had to break down some barriers of the negative reputation that the country has had when it comes to illegal drugs. But now that we’ve done that it’s starting to seem less strange to our investors.
The level of the team that we have put out - PhDs, Masters - all Colombian - and our ability to understand the culture has caught on very well. I think that’s why we were so successful in the last round which was almost double subscribed.
Khiron recently completed an $11 million private placement financing deal in advance of plans to be listed on the TSX Venture Exchange. What does this mean for the company moving forward?
Well, it shows tremendous support from investors. We just made the announcement on the 16th of January, and that has already allowed us to expedite our plans. Our plans for this year are mostly focused on acquiring patients and educating physicians - so we can start treating patients as quickly as possible.
I also believe that this is very good news for Colombia. We’re probably the first company, if not one of the first companies in a very long time that has Columbian operations to be publicly listed on the TSX Venture Exchange. That’s big news for the industry because, in the end, I believe we need more players in the country. You cannot build a successful restaurant on an empty street. Khiron wants to lead that conversation.
The success of this financing and the tremendous support for our business plan is a validation of our business model.
Khiron also announced just this week plans to host the first international medical cannabis symposium with the Colombian National Medical Association. Talk about that, and in broader terms the approach to medical cannabis in Colombia?
Our strategy has always been about the patients. Columbia is a very conservative society. It’s not a very strong recreational market. Only 11 percent of the population has ever smoked marijuana recreationally. You also have to understand it’s a very conservative society where patients depend a lot on what their doctors say. So the objective of this conference is to start by educating physicians in Columbia to start breaking down the barriers and myths about what cannabis is and what cannabis is not.
We’re very lucky that we were able to strike a sponsorship deal with the Colombian Association of Neurologists, which is the top medical association in Columbia. There’s more than 800 physicians in the network, and they believe in Khiron because we talk in evidence-based terms that they want to hear. The idea is to start educating the doctors. There’s a lot of myths and a lot of facts when it comes to cannabis, and we want to be able to show the doctors how that works.
Of course, we want to be the company that leads that conversation so that doctors and physicians and patients always associate medical cannabis with the Khiron brand.
Recently one of your competitors said, “We...express our sincere gratitude to the Colombian government for its commitment to the people working to rebuild their lives and transition into profitable entrepreneurs in this post-conflict region." What has it been like working with the Colombian government and do you agree with the broad sentiment behind such a statement?
Well, I can say first and foremost I agree 100 percent with that statement. I think the government of Colombia is creating very strong regulations which will become the framework for other countries in Latin America to follow. And it was not an easy job because in Colombia you have the Ministry of Justice, Ministry of Health, the local FDA, the National Narcotics Board all working together to create these regulations. It took about a year and a half for everything to come to fruition. So I’m always very grateful and sharing that we have a strong regulatory framework so we can invite more investors to come into the country.
The government has asked to have at least ten percent of all cultivation be with small producers. It’s a tremendous boost for farmers who, in some cases, were looking for some illegal cultivation because they have no other choice. Our approach with small farmers who are growing other things is to offer them to grow high-quality cannabis under a strong brand. I think it is going to be positive for our country and the economic futures of those small farmers.
About the Justice Department’s crackdown on legal marijuana here in the states. We’ve heard from a number of experts that uncertainty in the American market could be a boon for the larger global market. What are your thoughts on Jeff Sessions recent announcement and do you agree that it benefits the global marijuana market?
Oh, absolutely I agree that it helps companies like Khiron in particular. Once the United States approves medical marijuana federally, that will open the door for the big pharmaceutical companies, which of course will have deeper pockets than Khiron or even Canopy [Growth Inc. (TSX:WEED)] or Aurora [Cannabis (TSX:ACB)]. I think we have a window of opportunity to establish our brand and our business model.
I will make the assertion that eventually the United States will legalize - I don’t know if it will be under President Trump, but eventually it will happen because it makes sense. Once it does, we're going to start seeing the big pharma companies looking into the market. When that happens, they’re going to be able to dominate the market. So, for me, I look at it as very good news that the United States has not yet legalized.
On the other side, it also creates challenges for the financial aspects of companies like us with opening bank accounts. Most of the banks have operations in the United States. They don’t want to jeopardize their American operations. It’s a game of give and take, but overall it’s positive for us.
On the other hand, because cannabis prohibition is still in effect at the federal level in the United States, there are some negative consequences globally. I know companies recently like Aphria Inc. were threatened with delisting on the Toronto Stock Exchange if they didn’t divest from their American interests. Do you see the global cannabis market as being interconnected in some ways? In other words what’s bad for one is bad for all?
Well, it's interesting you mention that now because we’re going to the TSX Venture ourselves. The TSX Venture is extremely thorough about where you can operate and where you can’t. Before the Jeff Sessions, announcement companies were looking at the United States because it is a very big market. Now we cannot enter one of the biggest markets in the world. Every market we want to enter we have to get regulatory approval from the TSX Venture. That means a little bit of a slowdown when you’re trying to move as fast as possible. We just have to tread very carefully. We comply with everything our regulators want here in Canada.
I would like to ask you about the future of the cannabis industry across the globe. Most experts believe that with so many cannabis companies fighting for a piece of the market that consolidation is inevitable. For example, we finally saw CanniMed Therapeutics succumb to Aurora Cannabis this week. Where do you see the industry in five years? In ten years?
Absolutely I think consolidation is going to happen. I think personally as in any industry we need to come up with strategies to differentiate ourselves. I think people want to consolidate themselves to be bigger so they can make more investments and grow faster. I think there’s going to be some losers as well. Mainly those companies that are not able to differentiate themselves.
Anyone can have lower costs than the next company - it’s happening in every commoditized industry like corn, sugar, coffee, and plantains. In Colombia, we used to think we were the best at selling coffee. We have the best coffee in the world but we are are competing with Vietnam or Brazil on price.
That’s what I think is the good thing about consolidation because you have more capital to reinvest and differentiate yourself. I hope Khiron is one of those players consolidating others, but I also think the Latin American region is just opening up. We’ll have to opportunity to be entrenched in that market and see if we can become one of those big companies. You need differentiation otherwise you are going to see a lot of companies not able to make it in the long term.
If I could ask you one last question, I know many people reading this may have some preconceived notions about Colombia and the Colombian market. Is there anything you would like them to know that you think they don’t?
Oh, there’s plenty, and I could spend an hour telling you everything about our country and the region. I would say now that working with Khiron; you start to see there’s a lot of negative perceptions. All you see about Columbia right now is your exposure to Narcos seasons one, two, and three on Netflix. One of the things to know is that happened 25 years ago. Medellin used to be named one of the world's most dangerous cities. In the last two years, Medellin has been named one of the world’s most developing cities. Imagine that transformation, from what you see on these type of shows to what the reality is.
If I can share a personal story with you, when I was eight years old I was in the middle of all of the violence with all these drug cartels, My son is eight years old and when he hears these stories he looks at me and he asks me what country that is. Right now he doesn’t see anything; he’s raised in a different environment than I was. So for my son when I tell him about the violence and the difficulties he looks at me like I lived in another country. It’s fantastic to be able to experience that change. I think your readers will appreciate very much the fact that it’s not at all what you see on Netflix. Hopefully, we never go back to those times.