By Andrés Arell-Báez
Constellation Brands is a multinational distributor of alcoholic beverages with a stock valuation of more than one billion dollars, a figure that, although impressive, is in line with the expected results given their sales of brands in their catalog, which include Corona beer, Robert Mondavi wines and the Casa Noble tequila, among others. Precisely because of its scope and power is that its last acquisition, away from its comfort zone, seems destined to be the turning point in the process of consolidation of an industry called to transform businesses on a global scale: cannabis.
According to a report by Reuters, "Constellation Brands Inc. bought almost 10% of shares in the Canadian marijuana producer Canopy Growth Corp. for around 191 million dollars (...) The move by the producer of Corona Beer and Svedka vodka comes at a time when Canada and more and more U.S. states are advancing in legalizing marijuana for recreational use, generating questions about its illegal status". The CEO of the acquiring company, Rob Sands, explained his business move to Business Insider as "normal within our focus on identifying trends in consumption in the early stages."
With an equally good nose for business, Alvaro Torres co-founded Khiron Life Sciences Corp., an "agro-pharmaceutical" company focused on the sale of cannabis strictly for medical purposes. Torres, who has successfully performed in the top areas of the worlds of real estate, and energy and road infrastructure, explains his vision of venturing into this sector with a valuable economic analysis in light of the development of the Singer-Prebisch theory, also called "terms of trade". "In October 2015 the government of Colombia began publishing articles on the legalization of medicinal cannabis, a world of which it knew nothing. The articles were based on the possibility that the country would become a world power in that industry; but focusing their analysis on the advantage of production costs. As soon as I read it I began to think that it would be a pity for us to export cheap extracts again, because that is what we have always done with bananas, flowers or coffee; we export a pound of coffee at one dollar and then Starbucks sells it in a cup at five dollars". This development model, which is prevailing in Latin America, is "a race to the abyss because there will always be some country, like an Asian one, that produces it cheaper".
A first approximation to the sector, focused exclusively on analyzing its commercial outlook, led Torres to investigate the success stories of cannabis deregulation, among them Israel, Holland, the United States and Canada, leaving him with the certainty that "a large national cannabis pharmaceutical company could be established". In a conversation between Torres and Andrés Galofre, former Brand Manager of Advil, emerged the perfect strategy to grow a company like the one they wanted to found. "Advil entered the country six years ago and today has a market presence of more than 30%, being a product that really is the same in all its presentations," says Torres. It's generic ibuprofen. When I asked Galofre how he accomplished that, he told me about patient engagement, conversations with doctors, educating the guild about the product to offer it, resulting in patient brand loyalty." A sales strategy that Hollywood turned into a romantic comedy called Love and Other Drugs, would be the basis for Torres and Galofre's business dream, one that has already completed three rounds of financing in Canada, putting together the non-negligible sum of 11 million dollars.
Khiron Life Sciences Corp. is designed as a "cannabis-based pharmaceutical, but supported by medicine", capable of exploiting the natural advantages of Colombia and the Latin region, but especially focused on giving the doctors of our region a high-quality product, which has proven its capacity for improving the quality of life of patients worldwide. "What we are proposing, even from the Khiron logo, is to position ourselves as a universe of understanding across the whole spectrum of what the medical cannabis industry is; knowing what a patient needs, what a doctor requires, how we should move in the process of regulation". The words of Galofre, co-founder of Khiron, are born of the weight that comes with being pioneers in an industry that besides being nascent, with all the obstacles that this involves per se, is one that must fight against a powerful and unfair impediment in the public image that it projects. "The work here involves demystifying, showing medical evidence, talking to regulators and showing that the crop is a beneficial product and better than what is offered to patients today. We face the problem of starting not from scratch, but from behind and that is why our goal is to educate and change the collective image, "emphasizes Galofre. We could say that Khiron is about to turn an illegal market into a powerful medicinal industry.
This transformation process requires understanding why cannabis holds its current status as a dangerous drug. "We are in this situation because in the 1930 it was banned", says Torres. Carlos Gutiérrez in his text "The Corruption of Power" for Le Monde Diplomatique, has an explanation on par with that of the executive: "Hemp (...) A plant that for centuries served as the main source for making ropes and sails for boats, clothes, paper, supplies for painkillers, and no less than other 25000 products, was criminalized in 1937 in the United States under the 'Marijuana Tax Act', due to public opinion and pressure from two business groups: the journalistic industry that was handled by William Randolph Hearst, one of the richest men of his time, and the multinational Dupond. The interest of these groups in outlawing hemp resided in their economic interests and in their inability to overcome the properties of a plant that required no chemicals of any kind for its use. Hearst was also the owner of thousands of hectares in which he had planted trees to obtain paper pulp with which to print his newspapers and Dupond had the license on the sulphuric acid essential to process paper pulp, in addition to rayon and nylon, which found in hemp an ecological and uncomfortable competitor. " Taking the faithful portrait of the media mogul that Orson Welles did in Citizen Kane as a reference, the story is one unable to generate surprise.
The story told by the editorialist has a shocking context. By that time, Andrew W. Mellon, principal investor of Dupont and who was Secretary of Treasury for Presidents Warren G. Harding, Calvin Coolidge and Herbert Hoover, named Harry J. Anslinger as Director of the Federal Bureau of Narcotics and Dangerous Drugs, the world's first anti-narcotics czar, who banned hemp after classifying it as dangerous. The plan to end this natural product came to be supported by Hollywood with propaganda productions such as Reefer Madness (1936), Marijuana: Assassin of Youth (1935) and Marijuana: Weed with Roots in Hell (1936), all focused on demonizing the plant that affected the business of this powerful duo. In his blunt closing Torres explained: "Cannabis is a plant with more than 8,000 years of history... Eli Lilly & Co, one of the largest pharmaceutical companies in the world, sold cannabis products in 1915, what happened is that the ban curbed that and prevented the possibility of further research".
Torres traveled through the main American states looking for investment possibilities for his company, although he was met with unattractive offers for the proposed plan. "What we found was that everyone wanted to come to Colombia to buy cheap cannabis and take it. And it is a very valid business idea, which many companies will have; but that's not our idea. That's how it was until I met some Canadian bankers who told me 'Hey, this is a great idea, it's very differential; but what you need is capital". That's why, to a large extent, Khiron is a company with a Canadian soul.
In addition to the investors found, Khiron was founded in this northern country as a product of the economic boom that started there, following the legalization of the plant for medicinal use, with its next step being allowing its free recreational use in July of this year. "The market in Canada is growing exponentially. Just the 45 cannabis companies listed in the stock market are valued at 10 trillion dollars. " Journalistic reports confirm the assertions made by the man from Khiron: Bloomberg announces a "frenzy" in the price of stocks of cannabis companies in Canada, CNN anticipates the creation of a "multi-million dollar" industry, and a report by Deloitte projects a market of 22 billion dollars for 2020.
Regardless of the size and opportunities of the business, the determining factor to devote oneself entirely to this industry, according to Torres, is the medical potential of the product. "For me, the region with the most need for cannabis is not Canada, but Latin America. In Colombia we did a study with IMS Quantilies and found that there are 5.6 million patients in Colombia diagnosed with epilepsy, depression, anxiety... Of those, there are 2 million who suffer from chronic rheumatic pain, who are forced to take opioids, OxyContin or two jars of Advil a day. We do not want to sell to Canada while we neglect the needs of these patients, who are poisoning themselves with imported, expensive products that generate high costs for the health system. "
The executive emphasized that his study was local, but in "Latin America there are 620 million people" and it is easy to scale the needs of one country to the rest. Although it is true that cannabis does not cure any disease, its ability to alleviate many of the symptoms of certain pathologies is clear. Torres says, referring to those suffering from post-traumatic stress, a syndrome of greater importance for countries like Colombia, Mexico and the United States, that their problem "is that they can not sleep because of nightmares, and cannabis helps them regain their sleep." Regarding those that are struggling with cancer, "Cannabis is the best option for patients on chemotherapy, who suffer from nausea, insomnia, pain and lack of appetite." Today, these people are treated with opiates. "If you take a jar of OxyContin and look at the contraindications it has, you see that they are terrible." They are so terrible that their massive use has caused the declaration of a national security emergency in the United States.
Ana Cristina Laurell says in her report for La Jornada that "for a decade a very serious crisis of mortality due to overdose of narcotics has been gestating in the United States, related to a high rate of legal prescription of potent analgesic opiates. The health authorities of that country estimate that in 2016, 64070 deaths occurred due to this cause, with a 21% increase over the previous year. This means that these deaths are higher than those caused by weapons, car accidents, homicides and suicides. The history of this crisis illustrates the political manipulation of this tragedy, on the one hand, and the lack of scruples of pharmaceuticals and the lack of ethics of many physicians, on the other. "
The paragraph by Laurell is an exact summary of the special on the subject made by 60 minutes of CBS, for which they interviewed Matt Murphy, former Chief of Pharmaceutical investigations of the DEA, who today works as a consultant for Khiron. In an interview with the newspaper El Espectador, Murphy makes it clear that "10 or 15 years ago it was thought that marijuana was not useful for this, but now it is different. People can come to understand the benefits and eliminate prejudices. At that time no State would have done it. I think we need to use innovative methods to treat pain and cancer. The Government and society should change their thinking, and I think if this works well in Colombia it can be a model for Latin America. It is a process in which physicians, government and industry should be educated. " Ending his conversation, the former DEA man stipulates that "in Colombia many opioid-based drugs are used that are very expensive and generate health risks, with a high mortality rate. We try to offer a new option that can meet the needs of these patients. Add that to the fact that they are very expensive medicines and some of the patients decide to resort to buy other substances, such as heroin, which are not medicinal, but calm the pain, and end up overdosing. This tends to happen a lot, because they are addictive. Given the disadvantages of opioids and the benefits of marijuana, we must decide whether for strong back pain it is better to use oxycodone or medical marijuana. "
The high costs of pharmaceutical products, their controversial results and the enormous benefits that the natural alternative brings, have created what Torres calls a "gray market" born from the compassion of some doctors with patients urged to acquire a product that really helps them in their process of fighting strong illnesses. But there is also a challenge there, because "we must let patients know that the cannabis product they consume today is not only more expensive than what we could produce; but it does not have the same quality controls that we will implement".
Being a pharmaceutical focused on patients and doctors it is not surprising to know that the majority of their investment has been deposited there. "Our Chief Medical officer is Paulo Vega, a reputed neurologist with whom we started contacting the medical community. From there came our first partnership with the Medical Association of Neurology, which has about 800 doctors. With them we start our first mission: to educate. With IMS Qualities we did a study on the perception doctors had about cannabis prescription and the average rating of 300 doctors was 3.6 over 5. Which is not bad; but when you begin to tell them of the 130 compounds of the plant, which has terpenes and flavonoids, which works on epilepsy with excellent results, the answer is immensely positive. " In the fight against this disease, The Guardian published a hopeful report: Children who have experimented with a cannabis-derived drug have reduced the rate of seizures immensely, even completely eliminating them in a few cases. "Through the medical association we will offer to all the doctors some continuing education courses, so that before prescribing they know what this product is, all through some modules written by doctors like Daniel Schaffter of Toronto, one of the doctors with the most Cannabis patients in their country. Next February we will launch the first medical congress on cannabis in Colombia. The thing is that the point of all this is to give the doctors what they really want to see: Studies, literature, analysis... That is why we are bringing Michael Dor to this congress, the person from the Israeli Ministry of Health in charge of prescription of cannabis to patients. " A "dream team" that is complemented with members of the management team responsible for bringing Namaste Technologies to the market (company valued today at 800 million dollars), focusing everything on consolidating the first multi-Latin cannabis pharmaceutical.
But if the center of the whole strategy is on the doctors, the whole goal lies with the patients. "A month ago we had a cocktail party where there was a Colombian army corporal, and he told us the story of his five year old daughter who was born with blindness and epilepsy. Already desperate due to the seizures, not knowing what day they would stop, the military man told us that after giving cannabis to her he could finally meet her, because before she was seizing all day and he did not know who she was. That's the Khiron story. This story moved us a lot, someone who works for the State and who fights the illegal side of this business, uses this product to improve the quality of life of his daughter". Few images can be stronger.
The story surpasses the emotional arena and is projected towards the political debate. And the thing is the success in the construction of this industry goes through the state's strong support. "I spend two weeks a month in the United States and Canada promoting the company. 70% of the questions are about Colombia and the situation with the cartels. It's a tremendous challenge to overcome that image. The Government should realize the importance of what we can create here. Tomorrow, for example, it could be said by law that all car tires should incorporate hemp and an industry would already created. " The cannabis plant is one that can be exploited in its entirety to produce thousands of products, as highlighted in the text by Gutiérrez. From the government's perspective, doing this would be almost an investment: Forbes' text describes how in Colorado, where the product was legalized, it has been possible to create tax revenues of up to 70 million dollars in a year. "What we are asking from the government is to promote this industry." In this mission, a designation of the origin of cannabis is a valid idea.
For Álvaro Torres, CEO of Khiron, his company is part of the branch of capitalism baptized as altruistic, where enrichment must be compatible with the improvement of the quality of life of its clients. "I have one foot in Canada and one in Colombia, I see the potential that this industry has for our country and for our patients." Latin America is slowly changing its vision and, as Torres makes clear, "the trend is already irreversible towards legalization in medical terms." A change of perspective driven, surely, by the fact that the economic data projected for Canada is mirrored in other countries: Forbes stipulates that the size of the market in its home country, the United States, will lead it to go from having sales of 7.1 billion dollars in 2016 to 14 billion by 2020. While speaking with Álvaro Torres we came to the conclusion that "in Latin America we are talking about a market, in conservative figures, of 30 billion dollars a year". Today, Khiron is being approached by doctors looking for a solution for many of their patients, so the possibility of reaching those numbers in the future is highly probable.
The fact that the quality of the product threatens the interests of large consolidated industries makes old ghosts resurface, which from the past threaten its legal status in the future. Anna Kasparian, in her report on the subject for The Young Turks, revealed the strong pressure of the liquor industry in the United States to reverse progress on the issue. However, Juan Diego Álvarez, Chief Regulatory Officer and one of the important members of that universe of understanding of Khiron, maintains a very positive perspective. On the legalization of cannabis "the trend is already very marked at the global level. In Latin America: Mexico, Peru and Colombia have the strongest legal frameworks. (Khiron plans to venture into Mexico this year). In many countries, legalization initiatives come from citizens, from patients, from dramatic cases of sick people who force governments to act, and that generates some weakness. In Colombia, in the midst of the process of transforming the policy of the fight against drugs, this approach began to be implemented, the result of an international scenario in which legalization begins to be thought of as a means to produce drugs of this kind safely, but with the government itself as the author of the move, with unanimous support from all political strata, which is why legal certainty is greater. " Given that the country is one of the most historically important allies in the fight against drugs of the United States, the change in its perspective is one with potential to affect the vision of many countries at a global level.
The case of Uruguay, paradigmatic and media-related, is one full of complications according to reports of the Spanish-language New York Times. For Alvarez, who shares the diagnosis, the problem is that "by regulating both cannabis markets at the same time: the medicinal and the recreational, the second consumed the first, generating problems in international treaties." One of them is the "inability to insert companies into the financial system", as Torres tells us. In HBO's Last Week Tonight report on the subject, it was clear how the main problem of entrepreneurs in the United States of this industry was related to handling immense amounts of cash. In the face of this, as Alvarez says, "having learned the lesson of what Uruguay has done" will allow the those that follow to create an industry more gradually and appropriately for the challenges of the present day. "Often, being second allows you to be first later", the executive said.
As a product with so many economic possibilities for the region, with a promising future in its legality, but also with a significant competitive advantage in our countries, Latin America is late in focusing its policies in having a Cannabis industry whose vision should be very similar to that built by the team behind Khiron. The goal is not to become exporters of a raw material that then the large pharmaceuticals sell to us as a manufactured product, but to be able to create a real and profound industry and economic revolution in the continent. As explained by Debra Borchardt in her article for Forbes: "To put it into perspective, the growth of this market has been bigger and faster than what the 'dot.com' industry was." It would be unforgivable to miss this opportunity.
Source: Forbes Mexico