Khiron Life Sciences Attains Record Closing High Price

Khiron Life Sciences Inc (CVE:KHRN) OTCMKTS:KHRNF) momentum kept rolling Monday, as the predominantly LATAM operator closed at a new all-time daily high. This was the fourth consecutive such close for Khiron—on heavy volume to boot. We chronicle Khiron’s impressive recent run to the top.

In a sense, Khiron Life Sciences shouldn’t even be undergoing this bullish impulse to begin with. The company has not released a presser since September 12th; or material presser since August 23rd. Even then, the news provoked a short-term smothering effect on price: KHRN announced a common share offering at $0.90/share to raise aggregate gross proceeds of up to $11,250,000—a 10% discount to market. The junior market—save for Aleafia Health Inc.—has mostly consolidated over the past week. For outsiders trying to understand this move, the catalyst may not seem apparent.

But for those in the know, the move in Khiron Life Sciences is more about execution and scarcity than it is about glitzy press releases. It’s about an impressive management team which includes for DEA Supervisor Matt Murphy, CEO Alvaro Torres (SNC-Lavalin Colombia) and former Mexican president Vincente Fox. It’s about their pure-play LATAM operations, which are likely coveted by several larger LPs wishing to enter the continent expeditiously. And now, it’s about sentiment as a major Canadian investment bank affirmed what we suspected all along.

Canaccord Genuity provided the kerosene to already-bullish price action by initiating coverage on KHRN with a “speculative buy” rating and $3.00 price target on September 20th. The reasons cited are similar to the ones the Midas Letter has touted since May: superior management, rare pure-play LATAM exposure, and growing medical client base.

But another common theme becomes apparent as I further parse through Canaccord’s research report: valuation. This fact is strewn throughout, mimicking the narrative we’ve been reciting in top line terms all along. Comparatively speaking, Khiron is downright cheap compared to its peers. The money quote encapsulating this truism can be found on page 37, when Canaccord says the following:

We believe the company trades at a significant discount to the Canadian and US peer group, with an EV to 2020E EBITDA of 3.2x, which reflects an ~80% discount to the Canadian average of 16.5x.

Yes, eighty percent.

Backing up this conclusion, Canaccord notes that KHRN trades at a valuation discount compared to recent peer LATAM transactions. The average EV afforded to four Colombian acquired operators so far: $246 million. This includes the $290 million Aurora Cannabis Inc. paid for ICC Labs Inc. earlier this month. Fully diluted, KHRN is only valued at around $156 million, despite the fact their clinic distribution model is much more advanced.

Khiron Life Sciences CEO Alvaro Torres discusses securing multiple medical cannabis endorsements from the two largest medical associations in Colombia

This distinction matters because the importance of ultra-efficient production capacity is not as prized in a country like Columbia, where labor is cheap, arable land is pennies on the dollar, and industrial-scale growing is conducted outdoors. Khiron business structure is geared towards nurturing a medical client portfolio, not large scale cannabis production. Instead of playing that skinny margin game, the company has made a purposeful decision to pursue higher margins the current model provides. According to Cannacord, this will equate to a gross margins reaching the mid-forties in percentage terms by 2021E.

In terms of the rally itself, prices came within a penny of touching $2.00/share, finishing up $0.13 to $1.82/share (↑7.69%) on Day 3 of the run. Volume was brisk, chiming-in at 2.12 million shares—the stock’s second highest total aside from its inaugural, May 24th session. Shares have almost doubled in less than a month, and the company is becoming a household name among the cannabis investors.

Whether Khiron Life Sciences can continue to run remains to be seen. But keep in mind there are only around 64 million shares outstanding—among the lowest fully-diluted share structure of any prominent operator in the sector. With relative strength technicals such as the 20-period RSI (daily) nowhere near overbought territory, and with the company trading in blue sky territory, there’s room for upside extension. The recent move in Aleafia—a Canadian operator executing a similar clinic distribution model domestically—demonstrates that blue sky breakouts can run longer than initially imagined (although ALEF has incurred multiple catalysts along the way).

We await to see whether Khiron can maneuver a similar feat in lieu of material news flow, should recent trends continue.

Original article: Khiron Life Sciences Attains Record Closing High Price

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