Stocks to watch: 1933 Industries (CSE: TGIF) and Khiron (TSXV: KHRN)
I was on the road from Tuesday to Saturday last week with two scheduled appointments and one casual drop in. I will provide quick summaries here with more detailed reviews to follow.
1933 Industries, Las Vegas, Nevada: the purpose of this visit was to follow up on my January 25, 2019 visit. I was met by Stan ‘Teddy’ Sullivan, Vice-President, Business Development. Teddy is a bright, young, educated and knowledgeable person who I’m thinking is going to have a bright future with the company. Teddy showed me around this visit.
My goal was to confirm that construction was proceeding as expected. One of the primary functions for the new building is to be an indoor grow facility for 1933. Indeed the rooms are in the process of being outfitted ahead of moving in plants. One can see the fittings being put in place for the automated irrigation and fertigation systems and the electrical needed for lighting and climate control. The flow of material through the physical site has been well planned and laid out as explained to me by Teddy.
Conclusion: the next 12 to 15 months will highlight significant growth in revenue and profit margins based on the additional expansion of facilities. I am comfortable that construction will proceed on schedule. Assuming this is correct, I believe 1933 shares are greatly undervalued and should be purchased aggressively at current levels.
Planet 13, Las Vegas, Nevada: I had a brief time window allowing me to visit the Planet 13 “superstore.” I used a picture from the website as capturing the sense of this dispensary better that pictures taken on my cellphone. The ambience is typical Las Vegas. The store is large, loud and glitzy. Security is high in the sense that you need to sign in providing photo-ID and there is a highly visible human security presence outside and in. But beyond that you are issued a pass that allows you move freely throughout. All cannabis products are behind glass. T-shirts, hats, golf balls and the like are fairly accessible. Picture taking is allowed. The music is a little loud for a person of my age and, truth be known, probably for most people. I was there on a Tuesday afternoon and it was quite busy. Unlike many jurisdictions, Las Vegas is accustomed to dealing with tourists and is most hospitable. The staff seemed courteous and well trained to help you with all your cannabis questions. I didn’t experience the purchasing and payment procedures because I didn’t buy anything but from what I saw, it looked all very easy and efficient. I’m not sure I was looking the future of dispensaries but I’m sure it’s a perfect fit for Sin City.
Khiron Life Sciences, Bogota, Colombia: this was my fourth visit to Bogota in eighteen months and the program was very well organized and executed. I have to share my observation that when Khiron talks about Latin and South America, they are talking about what they have done so far and what they intend to do in the future. In almost all cases, they are describing things they have already done and most accomplishments are already substantial.
Unfortunately, I had caught the flu and was coughing and sneezing a lot. I was feeling poorly and so I thought it better not to expose the other attendees to my germs. As a result, I did not attend the site visit that required me to sit in tight quarters on a bus and helicopter with the others. Still based on the feedback, I knew things were progressing well.
The first day included a pre-opening visit to a nearby Fedco Store. KHRN has a retail distribution with Fedco that is the first and most established specialized beauty retailer in Colombia with 22 stores. A presentation on ski n care and KHRN’s Kuida line of products was led by Andres Galofre, Co-founder and VP Business Development and Elsa Navarro, Skin Unit Director. This time I was reminded that although Kuida enjoys first mover advantage, it was not a line of products rushed out to be first. Careful scientific study was undertaken for around a year to ensure Kuida is a product with real benefits to the consumer. Kuida products are currently offered in 200 retail outlets and are targeting 900 in the near future. There are advertising and promotion restrictions, some by Internet companies such as Google and Facebook. So KHRN has gone the old fashioned way – with kiosks in malls. This has worked well because the only way you can really prove to someone that the product doesn’t smell like cannabis is to put it on and try it for yourself. Elsa believes a totally new product such as Kuida is one that will consistently build a loyal customer base over time until it is well established in the marketplace.
Chuck Smith, President & CEO of Dixie was also in attendance and enthusiastically expressed his optimism toward distributing Kuida products marketed to persons of Latin and South American heritage in the United States and to have Dixie products distributed by KHRN in Latin America.
We also heard from Juan Diego Alvarez, Vice President of Regulatory Affairs, who is spending the majority of his time on matters outside of Colombia. “JD” is a key part of the team because he provides input on the approvals necessary for products like Kuida as well as the regulatory ins and outs of new markets. A new product may require as many as 28 permits prior to approval. I also had the opportunity to meet the security team of four put together by Matt Murphy, Vice President of Compliance. I haven’t had time to confer with Matt to make sure I get the spelling of their names correct but I will and I can tell you they all have strong U.S. Drug Enforcement Administration backgrounds having collectively held senior positions in Mexico, Latin America and South America. I joked with them that if they did their jobs properly, I may never hear about them again. I can assure you that security is another of those areas that is well looked after at Khiron and it should be a source of comfort to everyone that this is the case.
We also heard from the people in charge of developing KHRN’s businesses in Uruguay, Chile, Mexico and Peru. Members of this group, also known as country managers in product marketing and business development in their respective areas. Most of these people have not been with KHRN for very long but the company is committed to hiring locals to manage local affairs. It is also a sign of KHRN’s first mover advantage that they are able to hire such top quality people for these positions.
Above is a recent picture of the grow facility and below some people working on the plants. These pictures are taken from the company website. The largest structure to the left houses the grow operation while the large, rectangular building on the right is the new GMP lab and extraction facility. Having the experience of building the first grow facility, KHRN will now proceed to construct a second one. Construction should require less than six months and cost less than CA $1 million. The property can house ten such units and there is sufficient water and power to support them all. The lab and expansion facility will be able to handle and process all the biomass produced. Expansion at the site should take place rapidly moving forward.
Mr. Vicente Fox, Director of Khiron is the former President of Mexico and strong advocate for cannabis legalization. Prior to being President, Fox was the Chief Executive Officer of Coca Cola Latin America. Fox was a keynote speaker at lunch and is an outstanding ambassador for Khiron and cannabis. While Chris Naprawa, President of KHRN, did not have a specific speaking spot, his presence was felt everywhere and did an outstanding job over the previous twelve months as we find the company with over $50 million in cash and in the position of having 30% of the KHRN owned by insiders.
Alvaro Torres, Chief Executive Officer, is the person who has been most instrumental in the success enjoyed by KHRN to date. The employees will joke that Alvaro knew every one of them by name and could tell you a little bit about every person a year ago when there were only 20 people. They say he can do the same today when there are 250 people. I think it is important to report that at the meeting, Alvaro pointed out Canadian and Director Mark Monaghan as the person who really made it all happen. What Alvaro meant was around two years ago when no one else could do it, Mark and current Chief Financial Officer and also Canadian Darren Collins raised the first two million dollars of equity that got Khiron started.
Conclusion: it has been truly an amazing year and it was, in a way, KHRN’s first full year of real operations. When you consider the number of real people and their real accomplishments I find it incredible that the stock can still be purchased at these low prices. I believe the year ahead will be comparable in terms of achievements and accomplishments for KHRN. That is why I believe every reader should own between a little and a lot of this rare growth opportunity.