It seems that Medical Cannabis is here to stay. In 2013, Uruguay legalized marijuana (the Cannabis Sativa plant), then four years ago, Canada followed suit. In the US things have been messy with several states legalizing the plant, while it remains illegal at the federal level. Just last week, the state of New York legalized cannabis for all uses. In Colombia, the plant remains technically illegal for recreational use, but decriminalized, meaning those possessing personal amounts for recreational use will not be prosecuted—though commerce for recreational uses is still a serious crime.
On the other hand, for legitimate medicinal purposes, the government has taken a much more progressive stance. Firms may obtain licenses for cultivation, processing, use, and export of cannabis derivatives for medical and therapeutic applications. A leader and innovator in this field is the company Khiron Life Sciences (OTCQX, TSX.V: KHRNF, TSX: KHRN, Frankfurt: A2JMZC), operating in Colombia but with legal headquarters in Canada and trading on Canadian and Frankfurt stock exchanges.
Like several other companies in Colombia, Khiron cultivates and processes cannabis at its agricultural facilities in Ibagué, Tolima (above). But Khiron takes the unique approach of launching and operating a chain of integrative medical clinics under its Zerenia brand, providing a broad range of medical treatment services that go far beyond cannabis products.
To understand this unique approach, Finance Colombia’s Executive Editor Loren Moss sat down with Khiron Co-Founder and CEO Álvaro Torres to discuss go-to-market strategy, cannabis in Colombia, and the company’s unique Zerenia Integrated Care clinics.
Finance Colombia: We’ve covered Khiron for a few years now, so it’s good to finally talk to you. It’s been fascinating to look at the progress of the company starting out and getting licenses, and now you’re opening clinics, so I really want to understand more about the company. If I understand the structure, it’s incorporated in Canada with operations here in Colombia. So rather than try to describe it, why don’t you give me a brief overview?
Álvaro Torres: Thank you Loren. Well, yes, at Khiron, we are a B2C focused company, that means that my main obsession is to improve the quality of life of people through the use of medical cannabis. That means that we’re not a B2B obsessed company, we’re not here to sell the cheapest cannabis possible in the world, we are here to actually bring our products into patients’ hands and to bring medical cannabis to the forefront in Colombia and Latin America.
Everything that we do is based on how close we can get to that patient when cultivating in Colombia, of course, with the low cost capabilities that we have here, but we go all the way from the seed to the clinic.
We have our own network of clinics. We have opened one in Medellin in December; we’re opening five more in the next three weeks and hopefully 15 more by the end of this year. I believe that we have to drive that education, show people that it really works, building the evidence, doing things really quality; well done with good quality products, a lot of education and be able to reach as many places as possible. We’re fully integrated from the seed to the patient. We cultivate in Ibagué (Capital of Tolima Department, Colombia), and then we train our doctors, and we receive patients in our clinics.
That’s what we’ve done in Colombia, I would say that we have been very successful so far, [but we are] still a long way from where I want us to go, of course. But we’re taking that model across Latin America in Peru, in Mexico, Brazil and we are looking at similar models in Europe, where we are set to start sales in Germany and soon to start sales in the United Kingdom. And, it’s all Zerenia branded products, Zerenia branded clinics and that’s how we plan to grow our business.
We have our own network of clinics. We have opened one in Medellin in December; we’re opening five more in the next three weeks and hopefully 15 more by the end of this year.
So, we started selling in Colombia March 19 of last year, remember that President Ivan Duque closed the entire country on March 20, sort of a bittersweet moment because we were excited about being the first company in Colombia to sell medical cannabis, but then the next day everything is shut down, and, you know, it’s been tough to run a clinic in pandemic. I don’t have to explain to you because you have been here, but we have been growing 50% month to month, since then. With medical cannabis prescriptions, we just reached our 10,000th prescription in Colombia and just to give you the idea of what that means, in January we did almost half of what we did, in [all of] 2020.
So, the growth is happening because the more we go out there and tell people these stories of real patients, the more we talk about the clinic, we have more of these stories which are real stories out there, we have (Colombian commentator) Pirry, (soccer player) Iván René Valenciano, the more evidence we can show to the doctors, the more patients in Colombia are saying: “Well, you know, maybe this is not so bad,” and—you know, you’ve been, I don’t know, how long have you known Colombia?
Finance Colombia: I’ve known Colombia since 2004.
Álvaro Torres: Okay, so, you’ve seen the very exciting times the last eight years, I’ve been living here all my life, except when I went to school and for a country like ours, you know, where marijuana and drugs have been such a terrible part of our past, to have faces are saying, “you know, what I’m gonna try this because I’m sick of opiates,” and the fact that we are leading that conversation because we’ve been focused solely on that from the beginning, that’s why we’re having all this growth.
I mean we saw a hundred-year-old patient—I’m not kidding!—A hundred years old with arthritis, on Saturday! A year ago I would have never even dreamed that a woman of a hundred years old would be going to a clinic to get cannabis for her muscles and her joints! Also, stories are catching on because people are starting to understand the benefits. I’m not shy to say that Khiron, since we started, we’ve been advocates of that from the beginning, and we’re in a very exciting market because, I don’t know if you know, on December first the Colombian government declared that medical cannabis was now going to be reversed, so in Colombia today as we speak any patient in Colombia that needs medical cannabis has it covered by the national system.
Finance Colombia: Okay, by the EPS (Colombian health plans) and all those systems, right?
Álvaro Torres: It’s called the MIPRES, which is a direct reimbursement from the government to the insurance companies, to the EPS because, when we started in December 1 of last year with that, the amount of people that now are able to access this medication, which if done responsibly, can provide your benefits. It’s great, so that’s what we have been doing from the beginning, it’s always been our story and now we are let’s say, doubling down on the expansion of our clinics because we know how to treat patients, and we do it ethically because, of course, no doctor in our company is ever going to give a prescription to a patient that doesn’t need it but we do understand the management, we have benefits of medical cannabis with chronic pain and depression, epilepsy, and it’s been a very interesting ride right considering we are in the middle of a pandemic still now, so I can only imagine what we can do after these emergency sanitary restrictions end. But it’s very exciting Loren, for me and for everybody here in the company.
Finance Colombia: So, I don’t know a lot about cannabis, help me understand. Because you hear some people talk about CBD and then there’s the natural plant and then there’s I would imagine, other derivatives. You guys are focused on therapeutics, you have treatment centers now, and I think one unique thing about your business model is that like you said, you go from growing the product to also having the medical clinics as well. But help me understand what happens when the patient goes to the clinic, and what are your products? Are they these things that we hear about called CBD? Is it something that people smoke? is it an injection?
Álvaro Torres: Just to give you some background, in Colombia today the regulation allows medical cannabis and only in the form of extracts, ok? So, there is no flower market, legally at least.
I think the reason why the government did that, and we’re very open about it, I’m particularly very vocal about that, I think that was smart on behalf of the government to try to separate this illegal business of marijuana from the medical cannabis, even though it’s the same plant. We talk about cannabis today in Colombia there’s a clear distinction from marijuana, associated with illegal shipments, rock lords and medical cannabis which is more of a pharmaceutical type of quality.
Also now, of course, the cannabis plant has more than 150 molecules, the most well-known are CBD and THC. For the people who are not initiated in this industry I would say that you can use CBD for neurological issues such as epilepsy and abnormal movements just to give you examples. And THC would be mostly focused on chronic pain. This is 101 level, of course, you know, anybody who’s listening and knows more about cannabis can say “you’re being very simple,” but then on the spectrum of those there’s a combination of THC one-to-ones that the doctors prescribe depending on the condition of the patient, the age group, what side effects, right?
But if we look at those two that would be chronic pain THC, which is the psychoactive part of the plant and then CBD that’s very used, at least is mostly known for neurological issues.
I’ll give you my own example: I take CBD every night to go to sleep. As you can imagine, being CEO of this company (laughs)…so I take it to sleep. CBD is a non-psychoactive substance, but of course, there are also patients that have different conditions and can use THC to sleep. My wife for instance, uses a one-to-one mix of THC and CBD, so that tells you also that there’s a lot of uses that it’s really up to the doctor to really be well trained in this, and to give you a variety of options.
I’m telling you about the iPhone One, right? We’re not even going to the five cameras or ten different colors (laughs). But this is what the products would be mostly used for and in Colombia, just Colombia alone there are 6 million people with the prevalence of chronic pain, epilepsy, anxiety, depression, and sleep disorders. Today the only alternatives are either surgeries or very heavy opioids. You may or may not know, of course, the world is now turning against opiates, and the big issues that those type of medications have on addiction.
Finance Colombia: I’m from Ohio, and, you know, it’s a terrible…it’s worse than the crack epidemic in the 1990s! I mean our whole cities, and the countryside is devastated by people who get hooked on opiates: Oxycontin, Fentanyl, and all of these other different kinds of drugs, I don’t even know what they’re called. They seem to be terribly addictive and then when they try to get off, people can die from withdrawal symptoms.
Álvaro Torres: Medical cannabis offers a different alternative, it’s a plant that has been in the most negative news of the last 100 years, I’m sure you will appreciate this particularly: this all comes from the United States in the 1915 to the 1920s, and it had nothing to do when it was legalized, it had nothing to do with the plant, it had to do with, you know, unfortunate racial issues, and were, you know…
Finance Colombia: Yes, anti-Latino, anti-Mexican.
Álvaro Torres: anti-Latino, anti-Mexican, anti-black, because, you know, for these white folks back then it was these are these communities are using marijuana therefore, “stay away from my daughter!” And if you look at the first advertising of those famous movies like Reefer Madness and you look at those posters, it’s extremely bigoted.
Finance Colombia: They still persecute Native Americans because of peyote.
Álvaro Torres: Yeah, exactly.
Finance Colombia: Even to this day.
Álvaro Torres: That came all the way to all our countries, right? And we all have a negative feeling about marijuana, but in the end it’s a plant that’s been around for a thousand years.
Finance Colombia: And the government, some governments like the US, and I’m sure other countries as well, will pressure other governments, and say “we want you to make it illegal” and the other government says “well we don’t want to make it illegal,” they say “well you better make it illegal or you’re going to have problems!” It’s a fascinating to me how in Jamaica it is technically illegal. I remember when Uruguay said, when Mujica was the president, he said: “we’re going to make it legal” and there was such a scandal!
But Uruguay is still going very well. Everybody is not an advocate, it seems like their problems that they have, now it’s more peaceful than it used to be, but I remember in the US it was a tremendous scandal, then President José Mujica came, and he met with, I think Obama was the president at the time, it was about eight years ago, and that was a big scandal. I remember that there were some maybe diplomatic influences in the US that wanted to try to pressure or punish Uruguay, luckily, they didn’t. I think that that would have been very unjust.
But I remember, I think it was at least the first country in our hemisphere and one of the first countries globally and they said, “look we’re not going to prosecute people for this anymore,” and so far,—I haven’t followed closely—but so far it seems to have worked out.
Álvaro Torres: Well, it’s all progress, I think. The last government of Colombia (of President Juan Manuel Santos) made a really huge step by legalizing it, putting it into law. This government today I would say that even though it’s of course a little bit more conservative, the fact that this government is including cannabis as a medication that now can be covered by the insurance system, that’s an even bigger step. So conservative, liberal, whatever you are, there’s no denying that this is a plant that’s been demonized for too long, that there’s a lot of fear, of course. We have to do a lot of education, and there’s a lot of benefits for patients.
Now, of course, I told you Loren, my business is not on the B2B side, so I’m not in the business of exporting this to the rest of the world. I think it’s going to be a good opportunity also for companies in Medellin, there are a lot of companies there that are looking at that strategy. And, of course, Colombia does have a lot of advantages for that, but for me the most exciting part of this is to be able to change the life of people like Ivan Rene Valenciana for instance. Los Infomantes was telling everybody, that he was suffering from addiction to sleeping pills and then he took cannabis! And they used to listen to that story, and the fact that it’s in our clinic, that it’s our product, that we’re bringing, that just gets me very excited, and I think that’s where the future of this industry in Colombia is going to go, I think there’s going to be a B2B business, of course, but we’re also developing like—I think about Zerenia, it’s the biggest cannabis clinic in Latin America, it can be; and it’s in Colombia, right? I mean of course my company trades in the Toronto stock exchange.
A year ago I would have never even dreamed that a woman of a hundred years old would be going to a clinic to get cannabis for her muscles and her joints! Also, stories are catching on because people are starting to understand the benefits.
I’m the co-founder of the company, I’m the CEO, I’m based in Colombia, but it’s a Colombian-led team and companies like ours and other companies in this country that are taking the huge whole debt to be able to export value-added in a country that’s known regarding drugs as a difficult place to do business, and I think that’s very exciting and the more patients we can have, the more clinics we can open, the more data that we’re developing, the more products we can develop, I think that’s when Colombia is going to start looking like a clear leader at least in Latin America. And on the other side there are going to be the B2B businesses that want to export to the rest of the world, and there are some companies that have got to focus on building demand, or they’re going to focus on building the supply. I think Colombia can do both, so you can understand why particularly today even with a bit of pandemic things: you know, “the sky is falling” and all of that, I’m very positive because we’re seeing it every day.
Finance Colombia: You guys have made some moves, I think your ticker symbol is KHRNF, is that correct?
Álvaro Torres: Yeah, so we are trading the TSXV and the OTC as KHRNF, and on the Toronto stock exchange KHRN. We also trade in Frankfurt, but that’s day market trading. Most of our shareholders are Canadian and American. It’s incredible how many more US retail investors are catching on to the story. Of course, everybody is excited about cannabis now because of what’s happened in the US, you know.
And the big operators are doing tremendous business, I think that’s all really good, I was talking today to somebody telling them: “Listen, Florida which is one of the hottest markets right now, Florida started in 2017, and I feel that Latin America is at where Florida was four years ago, except with a population that’s 20 times higher, right?” So wouldn’t you like to be investing in Florida four years ago, and see it up to date? So I think that’s what’s happening here because you look at the biggest countries in Latam, right? Mexico already is in a great regulatory place, Brazil has already registered products, Peru is already selling, Colombia is far ahead, Argentina, Uruguay…
So you take these populations. Colombia got it done nine months after we started, it’s not a question of what is going to happen, it is going to happen, every country in Latin America is going to have this insured, why? Because one of the biggest costs to our health care system is imported medications and if I tell you that the biggest prevailing condition all across LatAm is chronic pain, and you and I know that the biggest medication of chronic pain opiate-based medication. It costs the governments a lot of money, and then you can offer a better alternative, that’s even better homemade, because it’s just going to be a matter of time.
But if Colombia did it, there’s no reason why the rest can’t. It’s a very exciting time to look about Latin America, and the best way is that while everybody is focused on the US that’s just leaving a field wide open. So for companies like ours, we can keep growing this region while everybody’s paying attention to the US, and if legalization happens hopefully sooner than later, that’s just going to open a whole new can of good worms in this region. You said it yourself, the only reason all these countries didn’t do it before is because in the US it was very illegal, because all the banks have a US correspondent in New York.
Imagine when that happens you’re talking about insurance, about banking, you’re talking about Facebook, WhatsApp, all of these things opening up to this industry! That’s actually helping our drive, so I may sometimes sound a little bit over enthusiastic but, you know? For what my company and I have experienced the last nine months…legalization and no COVID? that would be huge!
Finance Colombia: So, help me understand your business model. You’re opening clinics and people who are suffering from chronic pain would say “The Tylenol is not working for me…” Let me not try to guess. Tell me your go-to-market strategy. How are you selling the product? How are you distributing the product? You guys grow the product yourself? You guys process it yourself? You have your clinics, but I think you have other supply chain alternatives or other distribution methods? Where do consumers purchase Khiron products?
Álvaro Torres: First of all, let’s go from the consumer backwards. Any patient that is today on the radio, on TV, in news media, in Medellin today seeing, “well there’s a clinic there that has medical cannabis that’s going to be treating pain arthritis all of these things,” the patient gets an appointment at the clinic, the doctor decides on his or her own free, will: “is this a patient that’s that could be suitable for cannabis?”
If that patient is suitable for cannabis, that patient gets a prescription that day, the patient has two alternatives: either they pay for the medication right away or we work on the insurance program, so we can get the product paid for by the government.
In a way that happens almost in the same day. That order goes back to Khiron. On the other hand, we cultivate cannabis, we extract it, and we send all that extract to a lab that’s certified by INVIMA. Every day we produce that order from anywhere in Colombia, because that patient either is physically in Medellín, or is using their cell phone to get on our Doctor Zerenia app so we have patients in Leticia, and we have patients all across Colombia. Some of them go physically, some of them go online and that order gets fulfilled every day. That patient at the same day decides when the doctor gives the prescription if they want that medication delivered at home or they want to pick it up. 95% of the patients decide on home delivery so within the next day that patient gets this medication delivered at home.
If you are in a in a city that’s far away, it may take you maybe one more day. Six days after you take this medication, the clinic is calling up to follow up on that patient. That’s very important: “are you doing okay? Is the dosage working? How can we help you?” The patient reschedules their appointment over the next two months and so on and so forth.
So we produce, we cultivate cannabis all day, we produce it, but we make these units almost every day, and it’s done through the formulations. That’s what we do in our clinics, that’s why we’re expanding them and just to give you an idea, you know, we’re producing almost today 200 new prescriptions a day. When I started the team back in March, it was eight in the first month, so it’s going very fast now. We also have big partnerships with external clinics, so we do the same process. So you go Loren, to your nearby clinic that has an agreement with Khiron; all those doctors have been trained by us in medical cannabis. So you go there they say: “well you may be out of cannabis,” and it’s the same process. And Khiron would be calling the patient just to do the follow-up, and you get the delivery at home. So it’s the entire purpose of what we do is critical to delivering the service to the patient, if you are 75 years old and you have your arthritis, we don’t want you to walk around for two hours to go back and say here’s my medication. Everything we do is about service,
The government of Colombia just recently issued a new decree that’s going to allow us to be able to have these medications delivered by any drugstore or pharmacy, which will make life a lot easier. Because in some cases the patients will say: “yes I want home delivery,” some cases they want to say “no, I want to pick it up at the Drogueria La Rebaja nearby.” So if you look at the biggest, the most challenging part of our business it’s not the production of cannabis, it’s the service, it’s the customer service, how you are doing the appointments, the home delivery and that’s our go-to-market in Colombia.
Therefore, we’re talking about the business of Khiron. I’m not telling you that our business is to sell units, the research is to improve that quality of life and that includes the products, and the service. So why do we do that? Because this is such a new notable thing. A lot of it’s called handholding.” A patient takes a medication like this and they may easily fear or discontinue it because there’s a lot of fear, yes? So you need to be there, you need to show them if you want another appointment, we can have it. How are you taking it? Is the dosage correct? And that level of service is making us grow. It’s not just the quality of the product, which is great and consistent. How do we work with the patient? That path of changing medication and looking at an alternative. So that is our go-to-market strategy, and that’s what I want to do. We’re talking about in every country in Latin America.
Finance Colombia: So, you guys have clinics now in several cities, and it’s being integrated into the Colombian health system. I know that you guys did a pilot with SURA EPS, there are other, different modalities. It looks like you’re on the verge of being able to be distributed in pharmacies, have you seen any attention or any interest from…I talked to somebody yesterday, I met with somebody, a couple from the United States, and the first time they came to Colombia was to get a medical procedure done and they looked around and they said: “it’s great down here!” And they stayed.
So, they live here because they came here to get an operation because it was less expensive than in the US. Are you seeing that kind of interest? Are you seeing it from foreign patients, or are there any regulatory obstacles to treating foreign patients? Maybe there are regulatory problems in their own country or how easy or difficult that is to deal with here in Colombia?
Álvaro Torres: Well, the medical tourism industry in Colombia has been growing by more than double digits every year in the last five years. Even ourselves in our clinic we see patients from the Netherlands, who come all the way from Aruba to get procedures done here, because in our clinic not only do we do medical cannabis, we also do neurosurgeries that are very specialized. So today in our company we actually have patients even during the pandemic, patients from Aruba that have…Netherlands citizens to come here, and I think the next stage of that, I think there’s a huge opportunity for that here because as, you know, lower costs great service, we have a great sense of service in this country, which is not something that you get to see everywhere else.
That service, the costs, the cost of living, the availability of flights, and then you can add on top of that entire medical cannabis treatment regimen in a country where it’s fully legal. So I think probably the industry has grown a lot, I think there’s another opportunity to couple medical cannabis with that medical tourism. That’s happening already in Colombia.
I think the B2B business may be great, but it’s also a business that it’s eventually a race to zero because everybody wants to sell the cheapest product possible or hold as many people as possible. And we haven’t even seen what the Mexicans are going to do, what the Brazilians are going to do in terms of cultivation.
I think everybody, most people who are abroad start to see Colombia [delivering] the level of that high quality care that we do have, for example the level of surgery of New York City is not necessarily done everywhere else in the world, and the more medical cannabis becomes more mainstream, there are going to be opportunities to attract tourists, attract patients from the US who have to wait 60 days to get a surgery, because we have the [resources] here, and then you can add onto that medical cannabis in some conditions.
I think you are forecasting it well, that’s going to happen. It’s already happening, except now we will add medical cannabis to it. It’s happening in Cali, Medellin, the number of clinics and high-level hospitals and the people in these countries, that’s amazing.
Finance Colombia: You’re in the process of opening clinics. Where are your clinics now?
Álvaro Torres: We have three clinics in Bogota. Big health centers, more than 14,000 square feet, we have one in the north and Carrera 19 & 106, we have one in Country [neighborhood] at 84 & 15, in Parkway which is Teusaquillo, that’s closer to downtown. We open our new satellite clinic in Medellin in the Ophthalmology Center, and we are opening the next 4-5 in Barranquilla, Cali, Bucaramanga, Pereira, Villavicencio, and all these are cities that have more than 500,000 people and the plan is to be able to do all of that within the next seven months.
Finance Colombia: Great, So, how big is the company? Now you raised something like $13 million dollars a few years ago. Tell me about the staff, how many acres or hectares are you growing? You have I think four clinics, now you’re opening more.
Álvaro Torres: So, we’ve raised—we went public in the TSX.V about three years ago. We’ve raised close to $120 million CAD since we started. Today, last year December we closed around $20 million dollars. Our cash burn has been reduced significantly now that we’re increasing our sales, and we have almost no debt. and the only outstanding credit that we have is about $2.5 million on a lease-back because we acquired these clinics when we started in Colombia.
And when it comes down to our production, we spent close to $12 million dollars on a production facility which is not very big compared to what you may be used to. It’s basically one greenhouse of 85,000 square feet and one GMP compliant laboratory for extraction and quality analysis, that’s about say 500 square feet. The rest is the quality control…We can produce up to 10 tons of medical cannabis per year. It’s not the biggest number you will hear in Colombia, there are companies here that are doing 100 hectares (247 acres).
But the way I think about things—I’m an engineer by training—first comes demand and then supply. So, as we keep building our clinics, and growing that demand, we will keep expanding our facilities. But you know, our current needs for this year are met with what we have. If we sell all of the product that we can produce in our facility, that would be close to $80 million dollars of revenue, so I welcome the day when I have to expand it, you know what I mean? And that’s where and what we have been doing with our capital. The construction facility the acquisition of the clinics, all the marketing and training that we have to do to get to this. The expansion into countries like Peru, Mexico, Brazil and Germany which—and the UK, which we are launching very soon. And I think this year we are on the verge of exploding those sales. We started nine months ago in a market that’s really just starting.
We have a what’s called a tight capital structure. We are more than 15% inside owners. I represent the largest shareholder in the company, I haven’t sold a cent of stock. I think everybody in this company is really committed, it’s been four years, but we are just really starting in terms of the market, so the opportunity is very big. I think what we are building something really unique, because this is not just about a business model, it’s about the DNA of the company. It is focused on improving the quality of life of patients and that is a very different way of thinking about cannabis, than just trying to sell product as cheaply as possible.
I think the B2B business may be great, but it’s also a business that it’s eventually a race to zero because everybody wants to sell the cheapest product possible or hold as many people as possible. And we haven’t even seen what the Mexicans are going to do, what the Brazilians are going to do in terms of cultivation. So I think that that low cost cultivation that we can enjoy should be to our advantage. So we’re going to keep selling these units for fifty dollars and it cost four dollars to make, what do we do with that profit? we have to reinvest it back in the service, so we can keep getting that value out and thinking about demand is a lot more sustainable thinking about grams, so I always keep saying, you know, the focus of the companies are brands not grams, because brands win.
You know, anybody can grow grams, so that is in a nutshell what we have done, you know, we are very tight with our cash, mostly used now for the marketing and expansion of the clinics. we are in a situation right now where we have enjoyed great growth. All of cash has been raised on equity, so no converts, no funny things like that. And I think that puts us in a very unique position. It’s all about finding liquidity, it’s all about finding new investors that want to believe in what this industry is going to do. And you know, we are trading around…historically cannabis has been in the last four years on a wild run, everybody started with Canada and Canadian cannabis was the hottest thing ever. Then, you know, the companies they are not performing as they should be. Now it is the US. I think right now with the Biden election there is a lot of enthusiasm for medical cannabis, but beside that, we have to think about longevity of business models, and if you look at the successful business policy in the US, it’s all about vertical integration of brands. Because that’s what’s going to remain, anybody can cultivate cannabis and everybody who’s in the business always want to make it cheaper, so this is not going to be about cultivating thousands of hectares of supply, it’s going to be who’s able to sell that and create that loyalty with the patient or that consumer.
Finance Colombia: That brings up a question, so, with branding you decided to name the clinic Zerenia, Khiron is the product? Is that? Because Zerenia will be spun off or is going to offer other products, or why are there two separate brands there? Or maybe they’re not two separate brands maybe, I don’t understand, maybe you could tell me the strategy.
Álvaro Torres: It is two separate brands because Khiron…let’s say this product, this is a medical cannabis product [holds up a product], I mean this is an empty box but Zerenia is about healthcare.
If a patient goes into the clinic that patient is not necessarily going to get medical cannabis because, remember that our objective is to improve the quality of life. I mean cannabis cannot become something that if you have a headache: “cannabis!” If you, you know, if you’re–. If you want to paint the color red: “cannabis!” So in terms of brand structure, of the company, we have to understand that even though Khiron is a cannabis company, our clinics are not medical cannabis clinics. If you look at what says here. It’s “Zerenia integrative care management with medical cannabis.”
So, when we’re talking about regulations, we talk about clinics, we talk about products, there’s a difference between a product and a brand, and a clinic. Of course, every patient that needs medical cannabis gets a Khiron product, so we build that brand on the product with them that way. But also remember that in Colombia most of Latin America, Khiron as a company, we cannot talk to the patient directly.
If you look today at LinkedIn, you will see that Khiron makes no advertisements of the product, zero. But Zerenia does not advertise Khiron, what Zerenia does is we advertise that medical cannabis is good for you.
That’s why we did that split, and it eventually also means that if a patient goes to a clinic and needs absolutely an analgesic that patient will get an analgesic. Because of course, it’s in our interest to bring medical cannabis into the conversation, the first priority has to be the patient’s health. It’s just that we believe that medical cannabis is an alternative, this is why we grow it. We don’t grow it because we force people to prescribe it, we grow because we keep showing evidence and doctors believe it by themselves, so that is the difference, of course. And Khiron, even the name of the company…we came up with the name because Khiron was the centaur that taught Hercules medicine in ancient mythology, and in ancient mythology, it was the patron saint of pharmacists. That’s where the name of our company comes from because for us from the beginning it’s got to be about that care of patients.
We didn’t want to name the company cannabis anything or marijuana anything because also remember that all the cultural shocks that we have with Colombia and Latin America about marijuana and cannabis, we want to stay away from that. So that’s how that works, Loren.
Finance Colombia: You mentioned that you’re an engineer by background, you’re not a doctor. Why on earth did you decide you had to go through all these regulatory hoops? Colombia has—for a long time, marijuana or cannabis has not been legal. It’s very recent, you had some early successes a few years ago, I know when we first started covering you as far as getting some regulatory authorizations getting quotas, I know Colombia gets a quota from the United Nations, and then you guys got a very significant part of that quota. But how do you go from being an engineer to say: “I want to go into pharmaceuticals and health?” An engineer would go “according to my calculations that’s a big headache!”
Álvaro Torres: Well, you know, engineers also decided they wanted to go to the moon, right? I think engineering is about problem solving at its core, right? So the more problems you have, the more excited you get. But in my personal story, yes, I’ve been in engineering all my life. I built very large projects here in Colombia and Latin America. I worked in very famous engineering firms and my own engineering firms, and such. When Colombia legalized medical cannabis five years ago, it just came to us, and with my partners, we said, “you know, there are very few times in our life that we get to do something that is really unique,” and if you have that entrepreneur mind, you’re always going to be excited about that possibility. Of course, if we had known all of the issues, you may not even get into that right?
But you get on a path and you’re thinking, I mean listen: if the business was B2B I would probably have a tenth of the headaches that I have today because our business is on care and service. That makes it a little more challenging, but, even as an engineer you think about all these problems, you think about the end solution, how you’re going to get there and you assemble that thing! Because remember, engineering is all about teamwork, because no one person knows the answer in particular. Because out of all the engineers, I’m an industrial engineer, so that means I know nothing! (laughs) And so you start getting a really good team of people who want to share your passion, and then on March 20, you show everybody the first video of a patient that is telling everybody: “thank you because what you’ve done has changed my life!”
I tell you that makes all these three years look like nothing because every month you’re having another thousand, two thousand patients that are sending messages and saying, “thank you because now my epileptic daughter is feeling well.”
Six days after you take this medication, the clinic is calling up to follow up on that patient. That’s very important: “are you doing okay? Is the dosage working? How can we help you?”
So, then you’re thinking, “you know, yes, it’s gonna be tougher to get to the one million,” which is our plan, but then we’re going to have a million stories to share with everybody and I think that’s all going to make sense, but it’s always problem solving because you always think about the next stage.
You know, I was watching these documentaries on NASA, going to the moon and there are some people that have to think about the moon while they’re solving how to orbit the earth, and on the back they’re thinking well that’s great that we’re orbiting three times with John Glenn, but we have to think about going to the moon, and even today with landing on Mars, people are thinking “how do we actually have a man on Mars?”
So, I think it’s all about that passion, and all these problems, all these things, but it’s a unique opportunity. I mean Loren, we live in a country and you notice that, almost all our lives particularly in Colombia we produce commodity products. Our biggest exports are coffee, coffee beans, oil. Maybe, flowers are the one thing that we do provide value added, and we keep asking ourselves, “how do we make this economy grow?” And the only answer we give back to ourselves is “well we just keep growing more commodities.”
I was lucky enough to be able to go to school in the US, and I started thinking “well, why don’t we create something that’s actually going to create value?” That is, maybe we can change some part of this, and we don’t want to be the country that cultivates the most cannabis, I don’t want that to happen, I want us to be the country that develops the most cannabis technology, that has the best products, that has the best service, because that is exportable everywhere else.
Those things came to mind with my partners and me, my two co-founders when we started the company. I lead an amazing team that we have here, and everybody’s very motivated. When you feel down, because no, this is not easy, you just look at a couple of videos with these patients recording your stories, you’re thinking, “you know what? We have to keep going!”
Finance Colombia: You know, you’re right. I look at companies here, you look at the “resource curse,” and you look at countries that put out commodities. One of the problems with that is that if all you do is export crops and somebody else puts in the value-add somewhere else, then that’s also where the wealth is created. And you have a lot of countries, whether it’s in the Americas or in Africa or wherever—where they export crops, or raw materials, or petroleum, you look at countries that export petroleum, but they don’t have refineries. Colombia does have refineries, but Colombia still has to import refined petroleum products, even though there are refineries here.
And so when, like you said, when you can export a high margin product like a finished cannabis derived product, then you’re creating wealth obviously for your shareholders, but you’re creating the wealth in Colombia versus…”I’m going to, I don’t know, export—I mean coffee is great, but you export bags of coffee beans that are then roasted in Seattle or somewhere where they charge, a zillion dollars or $50 bucks for a cup of coffee! So, I think that one of the…I look at Tecnoglass (NASDAQ: TGLS). That’s a company I respect a lot because they don’t just export the raw product, they export environmentally high energy efficiency, treated, finished products that are used in high-end, branded real estate. So it’s like you’re not just exporting a raw green crop, you’re exporting the finished product or you’re creating a finished product and so I look at that, and I think that Colombia needs more of that! So, the best success to you guys, I follow the company, we here at Finance Colombia have followed you for years and so it’s good to finally talk to you.
Álvaro Torres: Thank you Loren, well, you know, just on that last point remember poverty calls poverty. If you are always focused on that commodity, you have to reduce your price, you’re going to pay your people lower, you’re going to reduce your labor costs because you have to produce it lower. Tecnoglass is a fantastic company, I know them very well. I know some of the executives because they are not selling glass, they are building facades for buildings in Miami.
Finance Colombia: Exactly.
Álvaro Torres: So, that’s I think that’s a great point, we all need to think about it. It’s always a longer path, but this is not such a complex business. Medical cannabis the way we look at it, is clinics, and product, and service. It’s not something that’s so far out there because it’s just a new medication that we just reintroduced into the market, and we try to do with really good service. So we can have 50% month-to-month growth, since we started?
Hopefully, you can go and visit our clinic and you can see for yourself because once you get there, you’ll see that. It will tell you everything you need to learn about our company just going there.
Photos, except screenshot, courtesy Khiron Life Sciences