Khiron Life Sciences has a 220 per cent upside, says ATB

Look for strong revenue growth in the upcoming quarterly results from Khiron Life Sciences (Khiron Life Sciences Stock Quote, Charts, News, Analysts, Financials TSXV:KHRN), according to Frederico Gomes, analyst for ATB Capital Markets, who released an report on the company on Monday where he reiterated his “Speculative Buy” rating on KHRN.

Bogota-headquartered medical cannabis company Khiron Life Sciences has operations in Latin America and Europe along with medical health clinics and a telemedicine platform. The company is set to release its fourth quarter 2021 financials this week, with Gomes calling for net sales of $4.0 million, adjusted gross profit of $1.9 million, adjusted gross margin of 47.2 per cent and an adjusted EBITDA loss of $3.5 million. 

“Our estimates imply a ~13 per cent q/q net sales growth, driven by a ~35 per cent q/q increase in medical cannabis sales as KHRN enters new markets and expands distribution in Colombia, Peru, the UK and Germany,” Gomes wrote.

“We believe the Company is on its way to reaching its guidance of $1 million in medical cannabis sales per month by the end of Q1/22e. As such, we continue to highlight KHRN as the fastest-growing company in our coverage, approaching an inflection point as medical cannabis sales become the most significant portion of its revenue mix. However, we note the Company’s liquidity (ended Q3/21 with $15.4 million in cash while burning $4.4 million) as a key factor to watch out for during the quarter, as it could indicate the need for near-term financing,” he said.

Gomes said he conducted a site visit to Bogota, Colombia, in December, observing that Khiron had perfected its demand-focused model in that country, one which he could see the company exporting to other locales this year. Gomes said Khiron’ recent partnership with children’s non-profit Teleton as supportive of his thesis.

On the company’s move into Mexico, where Khiron has obtained regulatory quotas for importing CBD and THC, Gomes said Khiron is now waiting for an import permit.

“Based on previous conversations with management, we believe KHRN has secured the infrastructure needed to expand rapidly in Mexico, after receiving an import permit. Teleton has 22 rehabilitation centers, one autism center, and one children’s hospital in Mexico servicing ~600k patients,” he said.

Also in the fourth quarter report, Gomes said he’ll be watching for the company’s capital position and cash burn rate to get a handle on the need for near-term financing as the company continues to scale up.

“We view KHRN as the fastest-growing company in our coverage, as evidenced by Q3/21 medical cannabis sales growth of ~46 per cent q/q. Given the success of the clinic model in Colombia, we have a positive outlook on the Company’s ability to scale medical cannabis sales (management guides for avg. quarterly growth rates of 25-35 per cent),” Gomes wrote.

Up ahead, Gomes said some of Khiron’s growth drivers and catalysts would be: first sales in Mexico; opening new clinics in Brazil, Colombia and Peru; a continued sales ramp in Europe, especially in the UK and Germany; improving patient conversion and churn; and reaching adjusted EBITDA positive status.

By the numbers, Gomes is calling for Khiron to hit revenue and adjusted EBITDA in full 2021 of $13.1 million and negative $15.1 million, respectively, and 2022 revenue and EBITDA of $23.9 million and negative $8.3 million, respectively. 

As a stock, Khiron Life Sciences has had a rough past 12 months (along with the rest of the cannabis space). The stock has been trading in the $0.20-$0.30 range over the past half-year, while KHRN was up in the mid-$0.60’s in March of last year.

With his reiterated “Speculative Buy” rating, Gomes also maintained his one-year target price of $0.80 per share, which at press time represented a projected return of 220 per cent.

Earlier this month, Khiron announced the opening of a new clinic and retail pharmacy in Bogota, one with a maximum annual capacity of 40,000 consults per year. The clinic will run under Khiron’s Zerenia banner and will also sell medical cannabis products to patients outside its Zerenia network as well as dispense High and Low THC medical cannabis to insurance companies in Colombia.

“Khiron has become a clear leader in the Colombian medical cannabis market because of its unique go-to-market strategy, anchored in our Zerenia clinic model,” said Khiron CEO Alvaro Torres in an April 11 press release. “This new expansion within Bogota capitalizes on the Colombian government’s decision on mandatory insurance coverage, and we aim to get closer to our patients and insurers, to improve quality of life. With our new retail pharmacy, we aim to be able to offer more access to patients outside our clinic network and to provide a dispensing alternative to insurers, thereby increasing our market leadership within Colombia.”