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Khiron’s “first-mover advantage” in Colombia lands $3 target price from Canaccord

By Brandon A. Dorfman
Sep 22, 2018

Khiron Life Sciences (TSX-V:KHRN), the Canadian integrated medical cannabis company with core operations in Colombia is set to prosper from a “first-mover” advantage in the Latin American market according to a new analyst report out this week from Canaccord Genuity. Kimberly Hedlin, who, according to Bloomberg is the only analyst on the street covering the stock, initiated coverage with a “speculative buy” rating. She puts a target price on Khiron of CAD$3.00 per share.

According to the report, the legalization of medical cannabis is quickly expanding across the Latin American continent and set to grow t an exponential pace. “In our view, Khiron Life Sciences is positioned to secure a sizeable market share given its first-mover advantage, low-cost operations, robust medical platform, and strong management team,” notes Hedlin. “We believe the stock provides an attractive entry point with rare exposure to LATAM medical cannabis.”

[Alvaro Torres: How Khiron Life Sciences Redefined What Cannabis Means To Colombia]

Earlier this year, Khiron became the first fully-licensed medical cannabis producer with core operations in Colombia to list on any global securities exchange when they went public on the TSX-Venture in May. “I never thought we could reach this milestone three years ago,” Khiron CEO Alvaro Torres told PotNetwork in an exclusive interview at the time. “I’m very thankful for my directors and the people that convinced me that we could do this in Toronto. So, personally, it’s a tremendous achievement to be able to have the opportunity to lead this fantastic company.”

Currently, at CAD$1.20 per share with a market cap of CAD$116 million, Canaccord gives a bevy of reasons for upgraded target price and initial rating. Most notably, according to Hedlin, Khiron plans to repeat their Colombian strategy throughout Latin America, in select countries. Canaccord sees Mexico as a prime target, with the company able to add about $1 per share for every 50,000 new patients it can sign up in the country.


Source: Canaccord Genuity

Torres vocalized that strategy in his interview with PotNetwork this spring, speaking of Khiron’s intentions to gain more patients in Mexico. “We’re looking now to enter into Mexico,” Torres noted at the time. “We believe that, now that the government of Colombia has done all of this regulation, every county in the region is following suit.”

“We see Mexico, Chile, Argentina, and Brazil coming in the next ten months, and there will be countries that will start with the importing of medical cannabis from Colombia, of course, because it would be more cost-advantageous. But in the meantime, I would say that I expect those countries to be looking at how to develop their own cultivation industry because they all want to receive the same level of foreign direct investments that Colombia is receiving. For Khiron, this is particularly interesting because, as much as I love our facility and I think we are doing a great job, we are more interested in how to acquire patients.”

Canaccord also believes that Khiron’s current patient network, which is upwards of 500,000, along with their strong management team will play a significant role in the company’s future. In addition to CEO Alvaro Torres, Khiron brought on Vicente Fox, the 55th President of Mexico and former CEO of Coca-Cola Mexico — an addition on par with Acreage Holdings grab of former House Speaker John Boehner earlier this year.

[Horizon’s Marijuana ETF to add Tilray, Aleafia Health, after missing out this week]

“Using a sum-of-the-parts DCF model (10-13% discount rate), we estimate a value of ~$3.00/sh. which includes total capacity of 25 tonnes per year, with a relatively small value attributed to exports,” write Hedlin. “Our target reflects an EV of $210 million and a 2020E EV/EBITDA multiple of 9.2x. We believe this is reasonable in light of recent transactions in the region (which averaged ~$250 million) and current Canadian trading multiples of 16.5x.”

Canaccord does note some risks to the stock price, which include the pricing of cannabis in Colombia, patient conversion rates, and the pending acquisition of the ILANS facility, a $7 million clinic that could bring the company an additional 100,000 patients. The ILANS acquisition is a “major contributor” to Canaccord’s valuation.

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