• Ted Ohashi

Mexico's President-Elect proposes legalizing recreational marijuana

News out of Mexico this week puts Khiron (TSXV: KHRN) front and centre on my screen. There is a very good reason I have KHRN up to 20% of The Cannabis Report Model Portfolio that will be evident in this report. If you haven’t acted already or are looking for a time to add to your positions, the first three days of this week will be the time to act.

Mexico’s President-elect, Andrés Manuel López Obrador submitted a bill to Congress on November 8, 2018 that will create a medical marijuana industry and legalize recreational use. It must be a priority because Obrador doesn’t even become President until December 1, 2018 and just last month, a delegation from Obrador’s future cabinet came to Canada to meet and discuss issues that included cannabis regulation. Khiron has close ties to Canada for many reasons including Canadian members of management Chris Naprawa, President, Darren Collins, Chief Financial Officer and Mark Monaghan, Director.

The legalization plan has broad support including many outside his National Regeneration Movement (MORENA) party that has a majority in both houses in any case. Some highlights include:

  • Companies will be allowed to grow and commercialize marijuana.

  • People can grow up to 480 grams (one pound) of cannabis annually for their own use.

  • Use in public places will be allowed.

  • The population of Mexico is 129.2 million compared with Canada (36.7 million) and Uruguay (3.5 million) so it will be the largest country by population to legalized cannabis. The population of the ten American states and the District of Columbia that have legalized is 79.8 million.

Here are reasons I think KHRN is front and centre in Mexico and is the most attractive investment opportunity:

  1. Alvaro Torres, CEO of Khiron said, "Mexico represents an important market opportunity for Khiron. We see today's announcement as significant in progressing towards a fully legalized cannabis market in the country. We have been studying the market for some time and are positioned to educate doctors on the benefits of medical cannabis and transfer our wealth of knowledge into this new market."

  2. Former Mexican President and Director of Khiron, Vicente Fox said, "As a Latin America focused company, Khiron is positioned to maximize the legislation proposed yesterday and to bring the benefits of a legalized cannabis environment to all Mexicans, which has the potential to reduce crime, increase prosperity and improve the health of our citizens."

  3. Mexican President-elect Obrador seems to be following the Colombian model suggesting a negotiated peace and amnesty for the members of the drug gangs that Mexico’s security forces have been fighting. This is the model Colombia developed and it appears to working.

  4. KHRN has reached an agreement with Farmalisto, a leading digital drugstore, to market and distribute the Kuida® CBD cosmeceutical brand to a population of over 120 million consumers in Mexico. Once approval is received from the Federal Commission for the Protection of Health Risks (COFEPRIS). Kuida® will be available in Mexico which is among the top 10 markets in the world for cosmetics and personal care products and the second largest market for beauty products in Latin America.

Here is what is the background. On October 25, 2018, the Company elected to accelerate the expiry date of warrants issued on January 12, 2018. This was triggered because earlier KHRN traded for 10 consecutive days at $1.40 per share or higher. Some shareholders had to sell shares to raise the capital to exercise their warrants so the immediate response was the price declined as shown by the first arrow. After three weeks or so, the selling eased up and the stock bounced sharply as shown by the second arrow. But now we are in the home stretch and a few stragglers appear to have been selling. The warrants expire on November 14, 2018 or Wednesday of this week. After that date, the window is closed and the opportunity is gone. With one day settlement, Tuesday will be the last day on which warrant holders can sell shares to exercise their warrants on Wednesday.

My sense is if there are any more shares to be sold, that will happen on Tuesday and the stock will likely bounce afterwards. Today, for example, the stock only dipped $.03 per share on 660,000 shares. So if you want to make this potentially profitable trade, it’s Tuesday.

In my opinion, there is a brief window of opportunity to buy KHRN. This is an ideal situation because no matter how the trade works out, this is a company you want to own. This is one of those rare win-win opportunities. I think you’ll be a winner immediately and a winner a year from now. On the offhand chance you’re not a winner immediately, I think the stock will serve you well over the next twelve months and more. Have you heard people complain that a short term investment became a long term investment because the stock price crashed? That’s just not in the cards with KHRN, in my opinion. If you buy and the stock pops higher, you will want to own it because KHRN is rapidly turning into the “Canopy Growth of Colombia.”

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