Is Khiron a Value Play After a Significant Pullback?

The last two weeks have been volatile for Khiron Life Sciences Corp. (TSX: KHRN) (OTC: KHRNF) and we continue to closely follow the Latin American cannabis company.

Last week, Khiron reported first quarter financial results that showed impressive growth on a variety of key metrics and the market initially responded positively to the earnings report.

A few days after the Latin American cannabis company reported earnings, it announced that it would raise capital by selling C$4 million of units for C$0.15 each. Khiron said it plans to use the capital for general corporate and working capital purposes and we will monitor how the management uses the capital to advance the business.

Although we consider the capital infusion to be a positive for Khiron’s near and long-term growth prospects, the market responded negatively with the stock falling more than 20% on the day of the announcement.

A Multi-National Growth Story that is Flying Under the Radar

From Colombia to the United Kingdom (UK), Khiron has been executing on a multi-national expansion. During the first quarter, the company reported more than $1 million of medical cannabis revenue from the UK and we are bullish on how this vertical of the business has grown when compared to the prior year.

Although we consider the European Union (EU) to be an attractive cannabis market for Khiron, we are bullish on how the business has captured additional market share in Colombia. In the country, the company is considered to a be medical cannabis leader and we are favorable on the amount of sales in Colombia that were covered by insurance (approx. 82% in the quarter).

During the first quarter, the Latin American cannabis company benefited from the growth of its health services business in Colombia  which is called ILANS SAS. The vertical played a major role with the company reporting higher gross margins from its medical cannabis business and we will monitor this trend in future quarters.

A Latin American Leader to be Aware of

Khiron ended the first quarter with more than $5 million of net cash which does not include the proceeds from the financing. Over the next year, we expect the capital from the financing to support the growth of the business in several emerging cannabis markets (the EU, the UK, and Latin America) and will be monitor how the business advances in the back half of the year.

Currently, Khiron is trading below the price of the financing and we find the valuation to be attractive after the recent decline. We believe the management team has been executing on a complex growth strategy and are bullish on the direction the business is moving.

We consider Mexico to be one of the most important cannabis markets for Khiron and expect the business to capture market share once federal law changes. So far, the company has formed strategic relationships in Mexico and we believe the market has not assigned much value to this aspect of the business.

During the last year, Khiron has reported several major milestones and we believe the recent pressure is overdone. We are of the opinion that the Latin American cannabis company is in the early innings of a major growth cycle and if you are interested in learning more about the business, please send an email to support@technical420.com with the subject “Khiron Life Sciences” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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