Htwenty Capital is one of those early stage venture firms. During a recent event organized by the City of Medellín’s investment promotion agency, ACI Medellín, Loren Moss, executive editor of Finance Colombia and Cognitive Business News was able to spend some time with the investment fund’s Platform Lead, Jimena Cortés to discuss the unique challenges—and opportunities that Colombia presents when it comes to funding and growing high potential startups.

Finance Colombia: I’m here with Jimena Cortés, who works with HTwenty Capital. What’s your role with HTwenty Capital?

Jimena Cortés: Sure, thank you very much for the invitation. I’m an investor for Spanish-speaking LATAM in HTwenty, and I also lead the platform efforts, that is, all the efforts we do post-investment for the portfolio.

Finance Colombia: Great, so HTwenty, my understanding is that it’s an early stage –it focuses on early stage seed, pre-seed, maybe Series A investments, really gets in early in the game. And then, you know, I did a little bit of homework, and you guys specialize in working closely, actively, with investors. Kind of holding their hand, serving a little bit more, you know, almost along the incubator route. Is that correct?

Jimena Cortés: Yes, in part, we’re an active fund, we’re super hands-on with our portfolio. A big, important part of our investment thesis is how we can generate value for our portfolio. That’s correct, we also enter in super early stages, it includes pre-seed also; pre-seed, seed, and pre-Series A is our sweet spot. And yeah, we have a really important network of advisors, super specialized in product, or on B2B acquisition, or technology. And we also have a playbook of partnerships and different stakeholders to help our portfolio, but we also strategically work along with them super closely.

Finance Colombia: Now, one interesting thing I noticed is that you guys have offices here in Colombia, in Mexico City, and Miami. You guys chose that geography as opposed to, let’s say, the traditional Silicon Valley or Boston or New York. Why?

Jimena Cortés: Yes, I think there are two answers to that question. The first one is that our thesis is a cross-border thesis, so we are super focused on creating this cross-border network, so companies from Colombia, Argentina, and Mexico can go to find operations in the US, but also from Colombia and Argentina to Mexico. So that’s an important part. And second, the ecosystem in Miami it’s growing in a really interesting way; it’s not the traditional Silicon Valley ecosystem, but we have a lot of second-time or third-time founders creating companies in Miami. So the ecosystem is getting pretty interesting, so we are making a bet on the Miami ecosystem.

“We invest in early stages. So basically, our sweet spot is pre-seed, seed, and pre-Series A.” – Jimena Cortés

Finance Colombia: Great. So speaking of here in Colombia, you’re Colombian, right?

Jimena Cortés: Yes, I’m Colombian.

Finance Colombia: So this has to be, you know, a point of personal pride that international venture capital firms are taking notice. What are the unique challenges compared to other Latin American locations like Mexico or Brazil? What are the unique challenges that Colombia faces when it comes to attracting venture capital?

Jimena Cortés: Yes, I think Colombia has done a pretty good job because we have a really good talent, technical talent, that is aiming to build interesting things. I think what’s more challenging is the exit ecosystem. Colombia has a small public or IPO system, so we have to look for other types of exits that are more in the private sector, and that’s how we attract these exits. Like in the US, there is a huge market on the M&A side. So I think the challenge here in Colombia is how we are going to exit to make the returns we expect, and how we also get into reasonable valuations.

Finance Colombia: Good point. I think that when we look at, for example, Colombian-listed companies, they tend to list –You know, I remember Tecnoglass, for example, a Colombian company. Now they’re based in Miami. They went from BVC in Bogotá to NASDAQ, then from NASDAQ to the New York Stock Exchange. When we look at the multilatinos, like here in Medellín, we have Grupo SURA, Bancolombia, Ecopetrol, and they’re all listed on the New York Stock Exchange. A lot of them also list in the BVC, maybe more for patriotism, I think, than anything else. So, because of that, it kind of precludes, to a large degree, going to a traditional domestic IPO because the capital markets or the demand for the securities aren’t there. Have you seen any companies, aside from obvious ones like, let’s say, Rappi, have you seen companies that have done international IPOs, that maybe it might be a company with Colombian roots, or other companies in your portfolio, Mexico, or elsewhere, that have gone the IPO route? Or is it more of, let’s look and get a strategic acquisition or private equity, or some other type of exit?

Jimena Cortés: Yeah. In this instance, we have not yet had any company that has made an IPO, either on their local market or in the US. We are looking more for private, targeted acquisitions strategically.

Finance Colombia: Now, looking at it from the entrepreneur standpoint, what type of venture, what type of founder, what type of entrepreneur should consider approaching HTwenty, and at what stage in their project?

Jimena Cortés : Sure. I think in early-stage VC, the founder and the founding team are the most important thing. So we focus on founding and building long-term relationships with these founders. We look for founders who are super technical, who have a lot of experience in the segment of the market they are approaching; we also value a lot the networking they can generate on the problem they are solving, and the obsession and passion for that particular problem, so they want to solve it. That passion that they feel about it.

We invest in early stages. So basically, our sweet spot is pre-seed, seed, and pre-Series A. We normally make tickets between 500,000 and 1.2 million. That’s our strategy. We look for equity ownership between 8% to 12% in these companies to build our long-term equity ownership for the ramp-up and the exits.

We have three main sectors we like to invest in. The first one is FinTech infrastructure. In LATAM, we have been focusing a lot on FinTech infrastructure because we see there’s a lot of gap in the technological infrastructure we have. For example, we invest in acquiring processing, in cross-border payments, in remittances, in collections, and public services. So we are going deeper into the infrastructure on the FinTech side. We think that through this infrastructure, with technology in this infrastructure, we can permeate the technological ecosystem in the region.

Second, we invest in verticalized SaaS, super focused on a particular value generation, like we have in restaurants, we have in inventory management, and other types of SaaS.

And AI. I think AI, of course, is a trending topic, but we are trying to understand how AI works as a backbone in the products and operations of our companies to make it more efficient and more productive. So with 30 people, you can do what you did three years ago, five years ago, you did with a hundred people.

Finance Colombia: Absolutely. And, you know, you’ve been generous with your time. It’s starting to get hot, the sun’s coming up here, I see that. I don’t want us to melt. But you know, I was looking at your website… You guys have some success stories that you’re pretty proud of that are still, of course, in the developmental stages. You mentioned the restaurant company that has restaurant SaaS software. Just mention maybe two or three of the companies that you guys have in your portfolio that are doing interesting things.

Jimena Cortés: Sure. For example, we have Felix Pago. That is a company that has recently closed its Series B with QED as a lead investor. So they have been doing really interesting things, growing at a really interesting pace. So we’re super excited about Felix Pago. We have also, from the Colombian side, Supra, which is working on cross-border payments and was the first investment made by Citibank New York here in LATAM. And we also have Akua, who is a founder from Medellín. They are building really interesting things in acquiring processing, and they closed the biggest pre-seed round in the region. So we’re excited about all the companies.

Finance Colombia: Congratulations. Much continued success, not just for you guys at HTwenty, but obviously for the Colombian entrepreneurial ecosystem. And what’s your website?

Jimena Cortés: Our website is www.htwenty.vc.

Finance Colombia: Thanks so much.

Jimena Cortés: Thank you.

The $130 million USD equity investment includes a previously disclosed secured convertible note issuance of $40 million USD from Hoche Partners Pharma Holding S.A. in mid-October 2024, intended to provide Procaps with liquidity during a period of financial distress. This note has since been converted into ordinary shares. The remaining $90 million USD was raised through a private placement of ordinary shares. The investor group comprises Chemo Project S.A., Becaril S.A., Flying Fish Ventures L.P., Saint Thomas Commercial S.A., Santana S.A., Hoche Partners Pharma Holding S.A., and other undisclosed investors. This collective now holds approximately 90% of Procaps’ shares.

The involvement of Hoche Partners in Procaps’ financial restructuring follows a period of contention between the Chilean-origin investment firm and the company’s previous management. In November 2024, Procaps received notification from Nasdaq regarding the suspension of its stock listing after failing to file its Form 20-F for the fiscal year ending December 31, 2023, with the US Securities and Exchange Commission (SEC).

This situation arose after Hoche Partners Pharma Holding initiated legal action through the US law firm Gibbons P.C. due to identified irregularities in the company’s accounting. Hoche Partners had proposed a change in management to address the delays in financial reporting.

According to a letter submitted to the SEC by Gibbons P.C. on behalf of Hoche Partners in late October, the investment firm had offered a $40 million USD liquidity injection to Procaps on October 20, 2024. The proposal outlined an immediate availability of half the funds, with the remaining half to be raised and invested before the end of the year.

Gibbons P.C. stated that this offer was contingent upon changes in corporate governance and voting rights affecting the majority shareholders while allowing them to participate in capital increases. Another condition involved the majority shareholders reimbursing the company for expenses related to the accounting investigation. However, Procaps’ management reportedly rejected this proposal and presented counteroffers deemed “unacceptable” by Hoche Partners. Consequently, Hoche Partners withdrew its offer on October 28, 2024.

Despite the withdrawal, Hoche Partners now intends to play a significant role in guiding Procaps’ transformation and supporting its long-term strategy. The new shareholder base, which includes investors with experience in the healthcare and pharmaceutical sectors, is expected to actively participate in the company’s turnaround efforts.

Alejandro Weinstein, Chairman of the Board and representative of Hoche Partners, stated, “With this strong and committed investor group that trusts the future of Procaps, the company is now in a position to stabilize, rebuild trust, and create long-term value through operational discipline and a renewed strategic focus.”

Simultaneously, Procaps finalized a comprehensive restructuring of approximately $209 million USD in debt that was previously under forbearance. The agreement with key lenders includes:

• Extension of debt maturities and revised payment schedules to improve near- and mid-term cash flow.
• Reprofiling of financial obligations to align with the company’s operational turnaround timeline.
• Adjustment of financial covenants to better reflect current operations and the strategic plan.
• Preservation of liquid assets to support ongoing operations and strategic initiatives.
• As part of the debt restructuring, certain lenders have agreed to convert a portion of their debt holdings into equity in the company, indicating an alignment of interests with Procaps’ long-term prospects.

Interim Co-Chief Executive Officer Melissa Angelini commented, “This financial reset gives us the breathing room and flexibility to focus on what matters: rebuilding the core of the business and creating sustainable value.”

These financial maneuvers follow a challenging fiscal year 2024 for Procaps. The company’s current focus is on executing a turnaround strategy that includes addressing the findings of a previously disclosed internal investigation related to internal controls, governance, and financial reporting. Procaps is also in the process of finalizing the restatement of prior-period financial statements and intends to release its audited 2023 and 2024 financials as soon as practicable. The delay in filing its Form 20-F was a key factor leading to the Nasdaq delisting notification.

Additional elements of the turnaround strategy include implementing structural cost-efficiency measures, centralizing decision-making, and prioritizing margin expansion through operational discipline and business simplification.

In a significant organizational shift, Procaps has relocated its corporate headquarters to Bogotá, Colombia. This move aims to centralize strategic, financial, and executive decision-making closer to the company’s primary markets. However, the company’s operational footprint in Barranquilla, where manufacturing plants, product development, and other key operational teams are based, will remain unchanged.

The headquarters relocation is part of a broader internal reorganization that involves the centralization of finance, financial planning and analysis (FP&A), compliance, legal, and information technology (IT) functions. The company is also implementing leadership transitions to foster a performance-oriented management culture, enhancing governance structures, and strengthening internal controls, reporting mechanisms, and operating discipline.

To enhance accountability and improve commercial performance, Procaps is reorganizing its operations into five regional clusters: Colombia, Brazil (B2B), United States (B2B), Andinos (comprising Peru, Ecuador, and Bolivia), and CENAM (including Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, and the Dominican Republic).

Furthermore, Procaps is actively pursuing strategic alternatives for non-core assets, with several discussions reportedly in advanced stages. The potential proceeds from these sales are intended for debt reduction and reinvestment in high-margin, strategic assets and operations.

With a restructured capital base and new leadership in place, Procaps states its focus is on restoring profitability through operational efficiency and cost control, reinforcing governance and transparency, delivering on its remediation plan, divesting non-core assets, and investing in innovation and commercial growth, particularly in prescription drugs and expanding its contract development and manufacturing organization (CDMO) global footprint. The company faces the ongoing task of addressing its delayed financial filings to regain compliance with Nasdaq listing requirements.

Greenberg Traurig, LLP advised Procaps as lead transaction and US counsel, Arendt & Medernach S.A. as Luxembourg counsel, and Philippi Prietocarrizosa Ferrero DU & Uria as Colombian and Peruvian counsel. FTI Consulting served as the company’s exclusive financial advisor.

Photo credit: Procaps Group website.

Fitch says that it took into consideration that the company will maintain its market share in both mobile and fixed services through investments and renewals in the network. This dynamic should support EBITDA generation and stable leverage. Telefónica Movistar is the second largest telecommunications operator in Colombia, offering mobile, fixed and business-to-business (B2B) services.

“Movistar Colombia is part of the life of Colombians, from their devices to their homes and companies, that makes us a privileged actor in the digital transformation of the country, to be able to influence the well-being of workers and our suppliers, allies, shareholders and users in general, we provide them with a value offer that we hope will meet and exceed their expectations. This rating reaffirms that we must continue to position ourselves as a key player in the market, continue to deploy fiber optics in Colombia, with which we hope to reach more than 5.5 million homes by the end of 2024.” said Fabián Hernández, CEO of Telefónica Movistar Colombia.

Long-time CX Industry luminary Shelli Ryan was on hand, and was kind enough to spend a few minutes with Executive Editor Loren Moss of Finance Colombia and Cognitive Business News to talk about the specific challenges the BPO & CX sector faces when marketing up and down the hemisphere, along with some exciting new things she is doing in the field of blockchain as applied to customer experience.

Finance Colombia:  I’m here with Shelli Ryan. Shelli is a colleague and a friend. It’s great to see you here in sunny Cartagena. We’re on the second day of the CX Summit, which is the largest–. I think it’s the largest customer experience and BPO industry event in Latin America, certainly in Colombia. So, first, it’s great to see you down here.

Shelli Ryan: It’s been a while. I think the last time we were in Windsor.

Finance Colombia:  Right, at Peter Ryan’s thing, exactly. So tell me, this is, I think, the first time I’ve seen you at the CX Summit. Tell me a little bit about why you decided to come and your first impressions of the summit.

Shelli Ryan: It is a fantastic organization (BPro); I have to say first of all. I was shocked at how many people were here, I mean over 700 people, and the best thing about it is that it wasn’t like old people, like you and me, they were young people, and that’s really what we need in the BPO industry as we look at omnichannel, we’re looking at the Metaverse and that really interested me because all the sessions we’re talking about, those things and more and that’s really what’s driving business today.

Finance Colombia:  It’s interesting because you saw some of the speakers, and even talking to some of the exhibitors, they’re doing these innovative things. They’re talking about how blockchain is being applied in the contact center, and that’s something I honestly never thought of. How these different technologies—distributed finance—and then how do you apply customer experience to these new modalities of not just commerce but of investment. People are now using bitcoin and other cryptocurrencies as stores of value, and because they’re not traditional banks, people still need some type of customer service, but it’s not traditional because it’s distributed and that creates a whole new layer of challenges, right?

Shelli Ryan: Yes, and actually blockchain is the next technology for call centers. It is one that’s going to help secure omnichannel, secure the transactions and the workforce management. All that and above, I think it’s really going to be something we have to take a look at.

Finance Colombia:  One of the things I wanted to ask you is…Let’s talk about your company because I know you have a considerable organization. You have some very interesting specialties that are relevant not just to BPO but really to the professional services industry. Give me an idea of what Ad Hoc Communications does.

Shelli Ryan: We do a little bit of everything, quite frankly. I have to say If you think about it, we are the ones that are marketing departments in a box for B2B, B2C and business services outsourcers, call centers in particular. If we’re in talking about call centers, and really what we do is we help them build demand by communicating, build demand by helping them with a sales channel, build demand by helping them scale in different geographies; so the reason why we’re particularly interested in Latin America is that they are looking for sales scalability in North America and we’re the ones that they usually call to help build their presence in North America, Western Europe, Eastern Europe and APAC,  and those are the places where we have our team members.

And Ad Hoc’s been in business for now 26 years, and prior to that, I was in financial services and online banking, ATM, EFT, ACH, all of that great vernacular if you will, and so all of those talents are put to use in helping financial services, telecommunications, travel, all those verticals that…Call centers, in particular, the ones that you and I work with, want to scale with, and so Ad Hoc is one.

The reason why I named the company Ad Hoc, as the founder and the owner, is because we’re “on demand.” They can turn us on, turn us off, and that’s very attractive to the LatAm marketplace, but also very attractive to the outsourcing community in general because they tend to offshore some of their marketing executives and their resources, and sometimes you just need a little more horsepower, and we bring that.

Finance Colombia:  You said something really interesting. Working a lot in Latin America and the Caribbean, I see where companies that are based down here often falter or struggle as they try to enter the US market, because even though there is a strong cultural affinity, there are nuances that cause them to struggle. The marketing, the flavor of marketing, if you will, is a little bit different. It’s fascinating because you’ll see the big global companies get it and they understand that and they…Just like McDonald’s tailors their menu a little bit for different markets, we have to tailor not just our marketing but our approach, even our sales approach, if we’re going to go and approach somebody and say, “Let’s go to lunch and let’s go do some business”, that’s very different, not just say from Colombia to the US, but from Mexico to Colombia, avery different business culture.

Shelli Ryan: Yeah. Here’s where I see they fall and this is often very predictable. One is they enter the market and they hire a bunch of salespeople, they’re unsupported, and then they say, “Well, we’ll hire an inside sales or a cold calling team”, but they have no marketing and no one knows who they are, and so I always counsel them to do the marketing first because then you would have the leads in the demand gen and then bring the salespeople.

“The reason why we’re particularly interested in Latin America is that they are looking for sales scalability in North America and we’re the ones that they usually call.”- Shelli Ryan

Then they also hire brokers, and you and I and Peter Ryan have talked about this, ad nauseum, is that it doesn’t work, frankly. You need to have an integrated marketing plan where there’s some content, there’s some thought leadership, there might be some events, there might be, you know, demand gen, a whole integrated campaign. And then, lastly, a lot of times they don’t put the budget behind it and that’s really key, so it doesn’t have to cost a fortune, but you do have to put an investment into your marketing so that your sales guys are properly supported.

Finance Colombia:  And understand how marketing works too. Some people think that marketing works like, “OK, I put an ad in the paper for one week and nobody called me yet, it must have failed. Maybe it failed, you know? I put one ad on the radio.”

Shelli Ryan: Exactly. Right. And ads are interesting too because a lot of the newer marketers are putting a lot of money into digital: Google ads, Facebook ads, and waiting for the phone to ring. It’s not going to, right? Especially in our industry, it’s a relationship type industry. It’s who you know. Your reputation and then also what’s your value, what’s your value proposition,  and that last one’s pretty keen, as you know as a thought leader yourself, you have to have the messaging straightened out before you go sell yourself, and that’s another thing that we do a lot of with companies around the world, is we help them with their messaging, what is it that makes them so different, what is that makes them unique, what’s the differentiator, and then what’s their value prop, and that’s key.

Finance Colombia:  Right. I think one of the things that companies have to understand is that marketing prepares the prospect, OK? So that when the sales process begins, it’s not the sales process, there is a prospect that is prepared and that is familiar and that is open to receiving your story, and to understanding, and to listening to what you have to offer, OK? But if you call me up and say, “Who are you?” Then if I’m the salesperson and I have to do the job of marketing and at least you’ve never even heard of me, then I’m going to have more of a struggle, and so marketing really is to pave the way, and that’s where, like you said, a lot of companies down here either try to do it on the cheap.

You know, you and I have both had people call us up and say, “Look, why don’t you give us some leads?”, and I’ll say: “So in other words, let me rephrase that—you want me to give you free marketing qualified leads and not pay for them and only get paid if you happen to do something down the road.”

Shelli Ryan: But look, here’s the other thing that’s probably pretty key. It’s that a lot of the companies who want to scale in the States, they don’t know who their buyers are, you know? So what they do is they say, “Oh, just market to anybody.” But are they the ones you want to and will they buy from you? And so personas are very important.

Finance Colombia:  The Buyer persona.

Shelli Ryan: Exactly. And so I think that would be another tip, if we were talking about tips, right? You know, the messaging, the personas, the integrated plan, but also having that face-to-face connection with your buyers, because it’s pretty key, especially in this industry.

Finance Colombia:  Absolutely. Now help me understand just concisely. Companies should contact Ad Hoc Communications when…What does that company look like and what is that situation that they’re facing? What’s the ideal time that we need to reach to Shelli and Ad Hoc?

Shelli Ryan: Pick up the red phone right when you want to scale, when you want to go global, when you might have an issue with your messaging, you know? The phones aren’t ringing or we have a situation where maybe a product isn’t moving as quickly as it needs to, because quite frankly it might be that we need to re-swizzle what’s been said about the product, the service, the company, what have you. And then just quite frankly the demand generation. You need to create leads. Usually, our profile is a mid-market company in a business services industry. Call center is one (sector) in particular, but also the B2B, B2C, technology companies that may be either a startup or a mid-market, but then also may be a bigger technology company that needs to pivot, needs to rotate, but needs to rotate it pretty fast.

Finance Colombia:  OK. Now I understand. You know, we talked about mid-market companies, but I know that you’ve done some exciting things with some of these new…I don’t know what they call it, web 3.0 companies, and you’re in some pretty cool things, so let’s kind of, get outside the box, because I know that’s sort of like a separate segment for you. But let’s go ahead and talk about that a little bit, and maybe if you want to touch on what you’re doing and who it might be, who might be interested in finding out more about it.

Shelli Ryan: Yeah. Web 3. I mean, we all have to realize that it is coming and it is coming fast, so the Metaverse and NFTs and crypto and blockchain. We have a separate company, at least I have a separate company that helps call centers in particular implement blockchain in their organization, and so we work with them to not only implement it but also to train their employees and their stakeholders so they understand that their job isn’t at stake and they’re not going to be shut out the door, but maybe even retrained into a blockchain enabled position.

I think the call center industry looks at blockchain as the next thing they’re going to put on their RFP list. Are you ISO certified? Are you PCI certified? Are you blockchain certified? And we’re the only ones in the world—the CX Blockchain Institute is the company name—only ones in the world who will certify call centers for blockchain, being blockchain ready, and then recertify them every year to make sure that they’re continuously on the leading edge.

Finance Colombia:  That’s really important because you can either disrupt or be disrupted.

Shelli Ryan: That’s right. Well, that’s a differentiator. It’s certainly a differentiator because as you look at all the call centers now, some of them pretty much look the same, and people, technology and process is what they always say. But if you have blockchain, that’s a game changer.

Finance Colombia:  Wow. And like you said, I think we saw such a young crowd here, which is—Not that we’re old yet, but still, it’s really cool because I think that a lot of these guys get excited about this and really want to participate. How can people reach your organization?

Shelli Ryan: So, our website for Ad Hoc is https://adhoccr.com/  and if they want a little more information about the blockchain institute, it is https://www.cxblockchain.org/

Finance Colombia:  Wonderful. Thanks so much for your time.

Shelli Ryan: Thanks!

Marathon has invested in companies serving small and medium sized businesses like Meru, Estoca, Sumer and Tul along with companies serving larger enterprises such as Hello Guru, Welbe, and Neivor.

“The first wave of successful companies in Latin America digitized the consumer and we believe the next wave of successful companies will build business-facing solutions that help leapfrog the competition,” said Alejandro Echavarria, co-founder and Managing Partner of Marathon Ventures. “For example, we believe small and midsize enterprises (SMEs) are sleeping giants and we are very excited about solutions that leverage SaaS and B2B marketplaces to enable them for success.”

According to Crunchbase, Latin America saw $19.5B in investments in 2021, more than triple from previous annual investments, making it the fastest-growing region in the world for VC funding in 2021. The potential growth in the region seems set to continue with massive, record-breaking investments in Latin American tech companies.

“Many people praise the technology adoption driven by the pandemic for the spike in investment in Latin America, but really it’s the first cohort of startup alumni and experienced founders with a history of formidable execution that helped global funds warm up to the region,” said Pablo Navarro, co-founder and Operating Partner of Marathon Ventures. “Marathon’s mission is to maximize the potential of talent in emerging markets. Our approach is to invest in promising operators, at the earliest stage by matching them with some of the best companies in the ecosystem, while at the same time helping our select group of portfolio companies build teams and products faster.”

Above photo: Marathon Ventures co-founders Alejandro Echavarria – Managing Partner, Pablo Navarro – Operating Partner, and Leon Papu – Managing Partner

Gross profit increased by 14.5 million, or 30%, to $62.3 million (yielding a gross margin of 58%) for the three months ended September 30, 2021, compared to $47.8 million (yielding a gross margin of 60%) for the three months ended September 30, 2020. Net loss for the three months ended September 30, 2021 was $36.9 million, compared to a net loss of $1.0 million for the three months ended September 30, 2020. Procaps says the increase in net loss was primarily attributable to a one-time, non-cash adjustment of $44 million to reflect the termination, on the closing of the business combination, of put options previously granted to certain shareholders.

“The third quarter of 2021 was highlighted by the achievement of a successful business combination with Union Acquisition Corp. II (“LATN”) and the listing of our ordinary shares on  NASDAQ, along with continued financial and operational momentum,” said Ruben Minski, Procaps Group’s Founder, Chairman and CEO. “The resurgence in the market with the re-opening of the economy, rapid ramp-up of new product launches, continued roll-out of products into new geographic areas and measured improvements to our inventory rotations combined to deliver 35% revenue growth during the quarter, including double-digit increases in four out of five of our business units.

Adjusted EBITDA increased by 27% to $24.5 million for the three months ended September 30, 2021, compared to $19.3 million for the three months ended September 30, 2020. Adjusted EBITDA margin decreased to 22.9% for the three months ended September 30, 2021, compared to 24.3% for the three months ended September 30,2020.

In a written statement, Minski added: “In our B2B segment, we expect to see growth from both our existing portfolio and product pipeline and in our B2C segment, we anticipate growth initiatives from our existing portfolio and from new products focused on current therapeutic areas in chronic diseases such as pain relief, immunology, cardiology, respiratory and dermatology, and the internationalization of our existing portfolio, with on-going efforts to expand our footprint of successful products outside of Colombia. Our internationalization strategy and on-going efforts to expand our footprint of successful products outside of Colombia continues to be one of our primary focuses, with a return to trade fairs and over 67 products internationalized during the quarter. We believe our company-wide product pipeline, with an estimate of over 600 product launches in the next three years, will provide the support for our growth in the next few years.

Year to date, net revenues increased by $69.9 million, or 33%, to $283.2 million for the nine months ended September 30, 2021, compared to $213.3 million for the nine months ended September 30, 2020. Net loss for the nine months ended September 2021 was $54.6 million, compared to a net loss of $19.9 million for the nine months ended September 30, 2020. The increase in net loss was primarily attributable to a one-time, non-cash adjustment of $59 million to reflect the termination, on the closing of the business combination, of the put options previously granted to certain shareholders and the valuation of such put options.

Chief Financial Officer Patricio Vargas explained: “As a result of our business combination, there were a number of one-time charges that affected our bottom line, and we are happy to report that they are extinguished and now reflect positive total equity on the balance sheet. For the nine months ended September 30, 2021, finance expenses totaled $79 million, of which $23 million was related to finance expenses accrued for the put options held by certain shareholders and $36 million represented a one-time expense for the termination of put options held by certain shareholders in connection with the recently closed business combination. Moreover, classifying and extinguishing these derivatives enables the company to articulate a cleaner financial profile in subsequent quarters as we move closer toward positive net income operations. Considering the favorable demand conditions that we have observed in the different markets we operate, we have decided to increase our investments in marketing and R&D, which we believe will result in further growth in 2022.”

“The quarter’s accomplishments and strong financial results are helping to accelerate the delivery of our innovative pharmaceutical solutions and drive new expansion initiatives that we believe will enable us to increase our market share of the approximately $58 billion pharmaceutical market in Latin America,” concluded Minski.

On the other hand, for legitimate medicinal purposes, the government has taken a much more progressive stance. Firms may obtain licenses for cultivation, processing, use, and export of cannabis derivatives for medical and therapeutic applications. A leader and innovator in this field is the company Khiron Life Sciences (OTCQX, TSX.V: KHRNF, TSX: KHRN, Frankfurt: A2JMZC), operating in Colombia but with legal headquarters in Canada and trading on Canadian and Frankfurt stock exchanges.

Like several other companies in Colombia, Khiron cultivates and processes cannabis at its agricultural facilities in Ibagué, Tolima (above). But Khiron takes the unique approach of launching and operating a chain of integrative medical clinics under its Zerenia brand, providing a broad range of medical treatment services that go far beyond cannabis products.

To understand this unique approach, Finance Colombia’s Executive Editor Loren Moss sat down with Khiron Co-Founder and CEO Álvaro Torres to discuss go-to-market strategy, cannabis in Colombia, and the company’s unique Zerenia Integrated Care clinics.

Finance Colombia: We’ve covered Khiron for a few years now, so it’s good to finally talk to you. It’s been fascinating to look at the progress of the company starting out and getting licenses, and now you’re opening clinics, so I really want to understand more about the company. If I understand the structure, it’s incorporated in Canada with operations here in Colombia. So rather than try to describe it, why don’t you give me a brief overview?

Álvaro Torres: Thank you Loren. Well, yes, at Khiron, we are a B2C focused company, that means that my main obsession is to improve the quality of life of people through the use of medical cannabis. That means that we’re not a B2B obsessed company, we’re not here to sell the cheapest cannabis possible in the world, we are here to actually bring our products into patients’ hands and to bring medical cannabis to the forefront in Colombia and Latin America.

Everything that we do is based on how close we can get to that patient when cultivating in Colombia, of course, with the low cost capabilities that we have here, but we go all the way from the seed to the clinic.

Khiron Life Sciences CEO Álvaro Torres with Finance Colombia Executive Editor Loren Moss on a Webex call.

We have our own network of clinics. We have opened one in Medellin in December; we’re opening five more in the next three weeks and hopefully 15 more by the end of this year. I believe that we have to drive that education, show people that it really works, building the evidence, doing things really quality; well done with good quality products, a lot of education and be able to reach as many places as possible. We’re fully integrated from the seed to the patient. We cultivate in Ibagué (Capital of Tolima Department, Colombia), and then we train our doctors, and we receive patients in our clinics.

That’s what we’ve done in Colombia, I would say that we have been very successful so far, [but we are] still a long way from where I want us to go, of course. But we’re taking that model across Latin America in Peru, in Mexico, Brazil and we are looking at similar models in Europe, where we are set to start sales in Germany and soon to start sales in the United Kingdom. And, it’s all Zerenia branded products, Zerenia branded clinics and that’s how we plan to grow our business.

We have our own network of clinics. We have opened one in Medellin in December; we’re opening five more in the next three weeks and hopefully 15 more by the end of this year.

So, we started selling in Colombia March 19 of last year, remember that President Ivan Duque closed the entire country on March 20, sort of a bittersweet moment because we were excited about being the first company in Colombia to sell medical cannabis, but then the next day everything is shut down, and, you know, it’s been tough to run a clinic in pandemic. I don’t have to explain to you because you have been here, but we have been growing 50% month to month, since then. With medical cannabis prescriptions, we just reached our 10,000th prescription in Colombia and just to give you the idea of what that means, in January we did almost half of what we did, in [all of] 2020.

So, the growth is happening because the more we go out there and tell people these stories of real patients, the more we talk about the clinic, we have more of these stories which are real stories out there, we have (Colombian commentator) Pirry, (soccer player) Iván René Valenciano, the more evidence we can show to the doctors, the more patients in Colombia are saying: “Well, you know, maybe this is not so bad,” and—you know, you’ve been, I don’t know, how long have you known Colombia?

Finance Colombia: I’ve known Colombia since 2004.

Álvaro Torres: Okay, so, you’ve seen the very exciting times the last eight years, I’ve been living here all my life, except when I went to school and for a country like ours, you know, where marijuana and drugs have been such a terrible part of our past, to have faces are saying, “you know, what I’m gonna try this because I’m sick of opiates,” and the fact that we are leading that conversation because we’ve been focused solely on that from the beginning, that’s why we’re having all this growth.

Khiron expects its network of Zerenia integrative care clinics to reach 15 by the end of 2021.

I mean we saw a hundred-year-old patient—I’m not kidding!—A hundred years old with arthritis, on Saturday! A year ago I would have never even dreamed that a woman of a hundred years old would be going to a clinic to get cannabis for her muscles and her joints! Also, stories are catching on because people are starting to understand the benefits. I’m not shy to say that Khiron, since we started, we’ve been advocates of that from the beginning, and we’re in a very exciting market because, I don’t know if you know, on December first the Colombian government declared that medical cannabis was now going to be reversed, so in Colombia today as we speak any patient in Colombia that needs medical cannabis has it covered by the national system.

Finance Colombia: Okay, by the EPS (Colombian health plans) and all those systems, right?

Álvaro Torres: It’s called the MIPRES, which is a direct reimbursement from the government to the insurance companies, to the EPS because, when we started in December 1 of last year with that, the amount of people that now are able to access this medication, which if done responsibly, can provide your benefits. It’s great, so that’s what we have been doing  from the beginning, it’s always been our story and now we are let’s say, doubling down on the expansion of our clinics because we know how to treat patients, and we do it ethically because, of course, no doctor in our company is ever going to give a prescription to a patient that doesn’t need it but we do understand the management, we have benefits of medical cannabis with chronic pain and depression, epilepsy, and it’s been a very interesting ride right considering we are in the middle of a pandemic still now, so I can only imagine what we can do after these emergency sanitary restrictions end. But it’s very exciting Loren, for me and for everybody here in the company.

Finance Colombia: So, I don’t know a lot about cannabis, help me understand. Because you hear some people talk about CBD and then there’s the natural plant and then there’s I would imagine, other derivatives. You guys are focused on therapeutics, you have treatment centers now, and I think one unique thing about your business model is that like you said, you go from growing the product to also having the medical clinics as well. But help me understand what happens when the patient goes to the clinic, and what are your products? Are they these things that we hear about called CBD? Is it something that people smoke? is it an injection?

Álvaro Torres: Just to give you some background, in Colombia today the regulation allows medical cannabis and only in the form of extracts, ok? So, there is no flower market, legally at least.

I think the reason why the government did that, and we’re very open about it, I’m particularly very vocal about that, I think that was smart on behalf of the government to try to separate this illegal business of marijuana from the medical cannabis, even though it’s the same plant. We talk about cannabis today in Colombia there’s a clear distinction from marijuana, associated with illegal shipments, rock lords and medical cannabis which is more of a pharmaceutical type of quality.

Also now, of course, the cannabis plant has more than 150 molecules, the most well-known are CBD and THC. For the people who are not initiated in this industry I would say that you can use CBD for neurological issues such as epilepsy and abnormal movements just to give you examples.  And THC would be mostly focused on chronic pain. This is 101 level, of course, you know, anybody who’s listening and knows more about cannabis can say “you’re being very simple,” but then on the spectrum of those there’s a combination of THC one-to-ones that the doctors prescribe depending on the condition of the patient, the age group, what side effects, right?

But if we look at those two that would be chronic pain THC, which is the psychoactive part of the plant and then CBD that’s very used, at least is mostly known for neurological issues.

I’ll give you my own example: I take CBD every night to go to sleep. As you can imagine, being CEO of this company (laughs)…so I take it to sleep. CBD is a non-psychoactive substance, but of course, there are also patients that have different conditions and can use THC to sleep. My wife for instance, uses a one-to-one mix of THC and CBD, so that tells you also that there’s a lot of uses that it’s really up to the doctor to really be well trained in this, and to give you a variety of options.

I’m telling you about the iPhone One, right? We’re not even going to the five cameras or ten different colors (laughs). But this is what the products would be mostly used for and in Colombia, just Colombia alone there are 6 million people with the prevalence of chronic pain, epilepsy, anxiety, depression, and sleep disorders. Today the only alternatives are either surgeries or very heavy opioids. You may or may not know, of course, the world is now turning against opiates, and the big issues that those type of medications have on addiction.

Finance Colombia: I’m from Ohio, and, you know, it’s a terrible…it’s worse than the crack epidemic in the 1990s! I mean our whole cities, and the countryside is devastated by people who get hooked on opiates: Oxycontin, Fentanyl, and all of these other different kinds of drugs, I don’t even know what they’re called. They seem to be terribly addictive and then when they try to get off, people can die from withdrawal symptoms.

Álvaro Torres: Medical cannabis offers a different alternative, it’s a plant that has been in the most negative news of the last 100 years, I’m sure you will appreciate this particularly: this all comes from the United States in the 1915 to the 1920s, and it had nothing to do when it was legalized, it had nothing to do with the plant, it had to do with, you know, unfortunate racial issues, and were, you know…

A Khiron agricultural technician in their Ibagué, Tolima facilities.

Finance Colombia: Yes, anti-Latino, anti-Mexican.

Álvaro Torres: anti-Latino, anti-Mexican, anti-black, because, you know, for these white folks back then it was these are these communities are using marijuana therefore, “stay away from my daughter!” And if you look at the first advertising of those famous movies like Reefer Madness and you look at those posters, it’s extremely bigoted.

Finance Colombia: They still persecute Native Americans because of peyote.

Álvaro Torres: Yeah, exactly.

Finance Colombia: Even to this day.

Álvaro Torres: That came all the way to all our countries, right? And we all have a negative feeling about marijuana, but in the end it’s a plant that’s been around for a thousand years.

Finance Colombia: And the government, some governments like the US, and I’m sure other countries as well, will pressure other governments, and say “we want you to make it illegal” and the other government says “well we don’t want to make it illegal,” they say “well you better make it illegal or you’re going to have problems!”  It’s a fascinating to me how in Jamaica it is technically illegal. I remember when Uruguay said, when Mujica was the president, he said: “we’re going to make it legal” and there was such a scandal!

But Uruguay is still going very well. Everybody is not an advocate, it seems like their problems that they have, now it’s more peaceful than it used to be, but I remember in the US it was a tremendous scandal, then President José Mujica came, and he met with, I think Obama was the president at the time, it was about eight years ago, and that was a big scandal. I remember that there were some maybe diplomatic influences in the US that wanted to try to pressure or punish Uruguay, luckily, they didn’t. I think that that would have been very unjust.

But I remember, I think it was at least the first country in our hemisphere and one of the first countries globally and they said, “look we’re not going to prosecute people for this anymore,” and so far,—I haven’t followed closely—but so far it seems to have worked out.

Álvaro Torres: Well, it’s all progress, I think. The last government of Colombia (of President Juan Manuel Santos) made a really huge step by legalizing it, putting it into law. This government today I would say that even though it’s of course a little bit more conservative, the fact that this government is including cannabis as a medication that now can be covered by the insurance system, that’s an even bigger step. So conservative, liberal, whatever you are, there’s no denying that this is a plant that’s been demonized for too long, that there’s a lot of fear, of course. We have to do a lot of education, and there’s a lot of benefits for patients.

Now, of course, I told you Loren, my business is not on the B2B side, so I’m not in the business of exporting this to the rest of the world. I think it’s going to be a good opportunity also for companies in Medellin, there are a lot of companies there that are looking at that strategy. And, of course, Colombia does have a lot of advantages for that, but for me the most exciting part of this is to be able to change the life of people like Ivan Rene Valenciana for instance. Los Infomantes was telling everybody, that he was suffering from addiction to sleeping pills and then he took cannabis! And they used to listen to that story, and the fact that it’s in our clinic, that it’s our product, that we’re bringing, that  just gets me very excited, and I think that’s where the future of this industry in Colombia is going to go, I think there’s going to be a B2B business, of course, but we’re also developing like—I think about Zerenia, it’s the biggest cannabis clinic in Latin America, it can be; and it’s in Colombia, right? I mean of course my company trades in the Toronto stock exchange.

A year ago I would have never even dreamed that a woman of a hundred years old would be going to a clinic to get cannabis for her muscles and her joints! Also, stories are catching on because people are starting to understand the benefits.

I’m the co-founder of the company, I’m the CEO, I’m based in Colombia, but it’s a Colombian-led team and companies like ours and other companies in this country that are taking the huge whole debt to be able to export value-added in a country that’s known regarding drugs as a difficult place to do business, and I think that’s very exciting and the more patients we can have, the more clinics we can open, the more data that we’re developing, the more products we can develop, I think that’s when Colombia is going to start looking like a clear leader at least in Latin America. And on the other side there are going to be the B2B businesses that want to export to the rest of the world, and there are some companies that have got to focus on building demand, or they’re going to focus on building the supply. I think Colombia can do both, so you can understand why particularly today even with a bit of pandemic things: you know, “the sky is falling” and all of that, I’m very positive because we’re seeing it every day.

Finance Colombia: You guys have made some moves, I think your ticker symbol is KHRNF, is that correct?

Álvaro Torres: Yeah, so we are trading the TSXV and the OTC as KHRNF, and on the Toronto stock exchange KHRN. We also trade in Frankfurt, but that’s day market trading. Most of our shareholders are Canadian and American. It’s incredible how many more US retail investors are catching on to the story. Of course, everybody is excited about cannabis now because of what’s happened in the US, you know.

And the big operators are doing tremendous business, I think that’s all really good, I was talking today to somebody telling them: “Listen, Florida which is one of the hottest markets right now, Florida started in 2017, and I feel that Latin America is at where Florida was four years ago, except with a population that’s 20 times higher, right?” So wouldn’t you like to be investing in Florida four years ago, and see it up to date? So I think that’s what’s happening here because you look at the biggest countries in Latam, right? Mexico already is in a great regulatory place, Brazil has already registered products, Peru is already selling, Colombia is far ahead, Argentina, Uruguay…

So you take these populations. Colombia got it done nine months after we started, it’s not a question of what is going to happen, it is going to happen, every country in Latin America is going to have this insured, why? Because one of the biggest costs to our health care system is imported medications and if I tell you that the biggest prevailing condition all across LatAm is chronic pain, and you and I know that the biggest medication of chronic pain opiate-based medication. It costs the governments a lot of money, and then you can offer a better alternative, that’s even better homemade, because it’s just going to be a matter of time.

But if Colombia did it, there’s no reason why the rest can’t. It’s a very exciting time to look about Latin America, and the best way is that while everybody is focused on the US that’s just leaving a field wide open. So for companies like ours, we can keep growing this region while everybody’s paying attention to the US, and if legalization happens hopefully sooner than later, that’s just going to open a whole new can of good worms in this region. You said it yourself, the only reason all these countries didn’t do it before is because in the US it was very illegal, because all the banks have a US correspondent in New York.

Imagine when that happens you’re talking about insurance, about banking, you’re talking about Facebook, WhatsApp, all of these things opening up to this industry! That’s actually helping our drive, so I may sometimes sound a little bit over enthusiastic but, you know? For what my company and I have experienced the last nine months…legalization and no COVID? that would be huge!

Finance Colombia: So, help me understand your business model. You’re opening clinics and people who are suffering from chronic pain would say “The Tylenol is not working for me…” Let me not try to guess. Tell me your go-to-market strategy. How are you selling the product? How are you distributing the product? You guys grow the product yourself? You guys process it yourself? You have your clinics, but I think you have other supply chain alternatives or other distribution methods? Where do consumers purchase Khiron products?

Álvaro Torres: First of all, let’s go from the consumer backwards. Any patient that is today on the radio, on TV, in news media, in Medellin today seeing, “well there’s a clinic there that has medical cannabis that’s going to be treating pain arthritis all of these things,” the patient gets an appointment at the clinic, the doctor decides on his or her own free, will: “is this a patient that’s that could be suitable for cannabis?”

If that patient is suitable for cannabis, that patient gets a prescription that day, the patient has two alternatives: either they pay for the medication right away or we work on the insurance program, so we can get the product paid for by the government.

Khiron laboratory processing apparatus

In a way that happens almost in the same day. That order goes back to Khiron. On the other hand, we cultivate cannabis, we extract it, and we send all that extract to a lab that’s certified by INVIMA. Every day we produce that order from anywhere in Colombia, because that patient either is physically in Medellín, or is using their cell phone to get on our Doctor Zerenia app so we have patients in Leticia, and we have patients all across Colombia. Some of them go physically, some of them go online and that order gets fulfilled every day. That patient at the same day decides when the doctor gives the prescription if they want that medication delivered at home or they want to pick it up. 95% of the patients decide on home delivery so within the next day that patient gets this medication delivered at home.

If you are in a in a city that’s far away, it may take you maybe one more day. Six days after you take this medication, the clinic is calling up to follow up on that patient. That’s very important: “are you doing okay? Is the dosage working? How can we help you?” The patient reschedules their appointment over the next two months and so on and so forth.

So we produce, we cultivate cannabis all day, we produce it, but we make these units almost every day, and it’s done through the formulations. That’s what we do in our clinics, that’s why we’re expanding them and just to give you an idea, you know, we’re producing almost today 200 new prescriptions a day. When I started the team back in March, it was eight in the first month, so it’s going very fast now. We also have big partnerships with external clinics, so we do the same process. So you go Loren, to your nearby clinic that has an agreement with Khiron; all those doctors have been trained by us in medical cannabis. So you go there they say: “well you may be out of cannabis,” and it’s the same process. And Khiron would be calling the patient just to do the follow-up, and you get the delivery at home. So it’s the entire purpose of what we do is critical to delivering the service to the patient, if you are 75 years old and you have your arthritis, we don’t want you to walk around for two hours to go back and say here’s my medication. Everything we do is about service,

The government of Colombia just recently issued a new decree that’s going to allow us to be able to have these medications delivered by any drugstore or pharmacy, which will make life a lot easier. Because in some cases the patients will say: “yes I want home delivery,” some cases they want to say “no, I want to pick it up at the Drogueria La Rebaja nearby.” So if you look at the biggest, the most challenging part of our business it’s not the production of cannabis, it’s the service, it’s the customer service, how you are doing the appointments, the home delivery and that’s our go-to-market in Colombia.

Therefore, we’re talking about the business of Khiron. I’m not telling you that our business is to sell units, the research is to improve that quality of life and that includes the products, and the service. So why do we do that? Because this is such a new notable thing. A lot of it’s called handholding.” A patient takes a medication like this and they may easily fear or discontinue it because there’s a lot of fear, yes? So you need to be there, you need to show them if you want another appointment, we can have it. How are you taking it? Is the dosage correct? And that level of service is making us grow. It’s not just the quality of the product, which is great and consistent.  How do we work with the patient? That path of changing medication and looking at an alternative. So that is our go-to-market strategy, and that’s what I want to do. We’re talking about in every country in Latin America.

Finance Colombia: So, you guys have clinics now in several cities, and it’s being integrated into the Colombian health system. I know that you guys did a pilot with SURA EPS, there are other, different modalities. It looks like you’re on the verge of being able to be distributed in pharmacies, have you seen any attention or any interest from…I talked to somebody yesterday, I met with somebody, a couple from the United States, and the first time they came to Colombia was to get a medical procedure done and they looked around and they said: “it’s great down here!” And they stayed.

So, they live here because they came here to get an operation because it was less expensive than in the US. Are you seeing that kind of interest? Are you seeing it from foreign patients, or are there any regulatory obstacles to treating foreign patients? Maybe there are regulatory problems in their own country or how easy or difficult that is to deal with here in Colombia?

Álvaro Torres: Well, the medical tourism industry in Colombia has been growing by more than double digits every year in the last five years. Even ourselves in our clinic we see patients from the Netherlands, who come all the way from Aruba to get procedures done here, because in our clinic not only do we do medical cannabis, we also do neurosurgeries that are very specialized. So today in our company we actually have patients even during the pandemic, patients from Aruba that have…Netherlands citizens to come here, and I think the next stage of that, I think there’s a huge opportunity for that here because as, you know, lower costs great service, we have a great sense of service in this country, which is not something that you get to see everywhere else.

That service, the costs, the cost of living, the availability of flights, and then you can add on top of that entire medical cannabis treatment regimen in a country where it’s fully legal. So I think probably the industry has grown a lot, I think there’s another opportunity to couple medical cannabis with that medical tourism. That’s happening already in Colombia.

I think the B2B business may be great, but it’s also a business that it’s eventually a race to zero because everybody wants to sell the cheapest product possible or hold as many people as possible. And we haven’t even seen what the Mexicans are going to do, what the Brazilians are going to do in terms of cultivation.

I think everybody, most people who are abroad start to see Colombia [delivering] the level of that high quality care that we do have, for example the level of surgery of New York City is not necessarily done everywhere else in the world, and the more medical cannabis becomes more mainstream, there are going to be opportunities to attract tourists, attract patients from the US who have to wait 60 days to get a surgery, because we have the [resources] here, and then you can add onto that medical cannabis in some conditions.

I think you are forecasting it well, that’s going to happen. It’s already happening, except now we will add medical cannabis to it. It’s happening in Cali, Medellin, the number of clinics and high-level hospitals and the people in these countries, that’s amazing.

Finance Colombia: You’re in the process of opening clinics. Where are your clinics now?

Álvaro Torres: We have three clinics in Bogota. Big health centers, more than 14,000 square feet, we have one in the north and Carrera 19 & 106, we have one in Country [neighborhood] at 84 & 15, in Parkway which is Teusaquillo, that’s closer to downtown. We open our new satellite clinic in Medellin in the Ophthalmology Center, and we are opening the next 4-5 in Barranquilla, Cali, Bucaramanga, Pereira, Villavicencio, and all these are cities that have more than 500,000 people and the plan is to be able to do all of that within the next seven months.

Finance Colombia: Great, So, how big is the company? Now you raised something like $13 million dollars a few years ago. Tell me about the staff, how many acres or hectares are you growing? You have I think four clinics, now you’re opening more.

Álvaro Torres: So, we’ve raised—we went public in the TSX.V about three years ago. We’ve raised close to $120 million CAD since we started. Today, last year December we closed around $20 million dollars. Our cash burn has been reduced significantly now that we’re increasing our sales, and we have almost no debt. and the only outstanding credit that we have is about $2.5 million on a lease-back because we acquired these clinics when we started in Colombia.

And when it comes down to our production, we spent close to $12 million dollars on a production facility which is not very big compared to what you may be used to. It’s basically one greenhouse of 85,000 square feet and one GMP compliant laboratory for extraction and quality analysis, that’s about say 500 square feet. The rest is the quality control…We can produce up to 10 tons of medical cannabis per year. It’s not the biggest number you will hear in Colombia, there are companies here that are doing 100 hectares (247 acres).

But the way I think about things—I’m an engineer by training—first comes demand and then supply. So, as we keep building our clinics, and growing that demand, we will keep expanding our facilities. But you know, our current needs for this year are met with what we have. If we sell all of the product that we can produce in our facility, that would be close to $80 million dollars of revenue, so I welcome the day when I have to expand it, you know what I mean? And that’s where and what we have been doing with our capital. The construction facility the acquisition of the clinics, all the marketing and training that we have to do to get to this. The expansion into countries like Peru, Mexico, Brazil and Germany which—and the UK, which we are launching very soon. And I think this year we are on the verge of exploding those sales. We started nine months ago in a market that’s really just starting.

We have a what’s called a tight capital structure. We are more than 15% inside owners. I represent the largest shareholder in the company, I haven’t sold a cent of stock. I think everybody in this company is really committed, it’s been four years, but we are just really starting in terms of the market, so the opportunity is very big. I think what we are building something really unique, because this is not just about a business model, it’s about the DNA of the company. It is focused on improving the quality of life of patients and that is a very different way of thinking about cannabis, than just trying to sell product as cheaply as possible.

I think the B2B business may be great, but it’s also a business that it’s eventually a race to zero because everybody wants to sell the cheapest product possible or hold as many people as possible. And we haven’t even seen what the Mexicans are going to do, what the Brazilians are going to do in terms of cultivation. So I think that that low cost cultivation that we can enjoy should be to our advantage. So we’re going to keep selling these units for fifty dollars and it cost four dollars to make, what do we do with that profit? we have to reinvest it back in the service, so we can keep getting that value out and thinking about demand is a lot more sustainable thinking about grams, so I always keep saying, you know, the focus of the companies are brands not grams, because brands win.

You know, anybody can grow grams, so that is in a nutshell what we have done, you know, we are very tight with our cash, mostly used now for the marketing and expansion of the clinics.  we are in a situation right now where we have enjoyed great growth. All of cash has been raised on equity, so no converts, no funny things like that. And I think that puts us in a very unique position. It’s all about finding liquidity, it’s all about finding new investors that want to believe in what this industry is going to do. And you know, we are trading around…historically cannabis has been in the last four years on a wild run, everybody started with Canada and Canadian cannabis was the hottest thing ever. Then, you know, the companies they are not performing as they should be. Now it is the US. I think right now with the Biden election there is a lot of enthusiasm for medical cannabis, but beside that, we have to think about longevity of business models, and if you look at the successful business policy in the US, it’s all about vertical integration of brands. Because that’s what’s going to remain, anybody can cultivate cannabis and everybody who’s in the business always want to make it cheaper, so this is not going to be about cultivating thousands of hectares of supply, it’s going to be who’s able to sell that and create that loyalty with the patient or that consumer.

Finance Colombia: That brings up a question, so, with branding you decided to name the clinic Zerenia, Khiron is the product? Is that? Because Zerenia will be spun off or is going to offer other products, or why are there two separate brands there? Or maybe they’re not two separate brands maybe, I don’t understand, maybe you could tell me the strategy.

Álvaro Torres: It is two separate brands because Khiron…let’s say this product, this is a medical cannabis product [holds up a product], I mean this is an empty box but Zerenia is about healthcare.

Khiron laboratory facilities in Tolima, Ibagué

If a patient goes into the clinic that patient is not necessarily going to get medical cannabis because, remember that our objective is to improve the quality of life. I mean cannabis cannot become something that if you have a headache: “cannabis!” If you, you know, if you’re–. If you want to paint the color red: “cannabis!” So in terms of brand structure, of the company, we have to understand that even though Khiron is a cannabis company, our clinics are not medical cannabis clinics. If you look at what says here. It’s “Zerenia integrative care management with medical cannabis.”

So, when we’re talking about regulations, we talk about clinics, we talk about products, there’s a difference between a product and a brand, and a clinic. Of course, every patient that needs medical cannabis gets a Khiron product, so we build that brand on the product with them that way. But also remember that in Colombia most of Latin America, Khiron as a company, we cannot talk to the patient directly.

If you look today at LinkedIn, you will see that Khiron makes no advertisements of the product, zero. But Zerenia does not advertise Khiron, what Zerenia does is we advertise that medical cannabis is good for you.

That’s why we did that split, and it eventually also means that if a patient goes to a clinic and needs absolutely an analgesic that patient will get an analgesic. Because of course, it’s in our interest to bring medical cannabis into the conversation, the first priority has to be the patient’s health. It’s just that we believe that medical cannabis is an alternative, this is why we grow it. We don’t grow it because we force people to prescribe it, we grow because we keep showing evidence and doctors believe it by themselves, so that is the difference, of course. And Khiron, even the name of the company…we came up with the name because Khiron was the centaur that taught Hercules medicine in ancient mythology, and in ancient mythology, it was the patron saint of pharmacists. That’s where the name of our company comes from because for us from the beginning it’s got to be about that care of patients.

We didn’t want to name the company cannabis anything or marijuana anything because also remember that all the cultural shocks that we have with Colombia and Latin America about marijuana and cannabis, we want to stay away from that. So that’s how that works, Loren.

Finance Colombia: You mentioned that you’re an engineer by background, you’re not a doctor. Why on earth did you decide you had to go through all these regulatory hoops? Colombia has—for a long time, marijuana or cannabis has not been legal. It’s very recent, you had some early successes a few years ago, I know when we first started covering you as far as getting some regulatory authorizations getting quotas, I know Colombia gets a quota from the United Nations, and then you guys got a very significant part of that quota. But how do you go from being an engineer to say: “I want to go into pharmaceuticals and health?” An engineer would go “according to my calculations that’s a big headache!”

Álvaro Torres: Well, you know, engineers also decided they wanted to go to the moon, right? I think engineering is about problem solving at its core, right? So the more problems you have, the more excited you get. But in my personal story, yes, I’ve been in engineering all my life. I built very large projects here in Colombia and Latin America. I worked in very famous engineering firms and my own engineering firms, and such. When Colombia legalized medical cannabis five years ago, it just came to us, and with my partners, we said, “you know, there are very few times in our life that we get to do something that is really unique,” and if you have that entrepreneur mind, you’re always going to be excited about that possibility. Of course, if we had known all of the issues, you may not even get into that right?

But you get on a path and you’re thinking, I mean listen: if the business was B2B I would probably have a tenth of the headaches that I have today because our business is on care and service. That makes it a little more challenging, but, even as an engineer you think about all these problems, you think about the end solution, how you’re going to get there and you assemble that thing! Because remember, engineering is all about teamwork, because no one person knows the answer in particular. Because out of all the engineers, I’m an industrial engineer, so that means I know nothing! (laughs) And so you start getting a really good team of people who want to share your passion, and then on March 20, you show everybody the first video of a patient that is telling everybody: “thank you because what you’ve done has changed my life!”

I tell you that makes all these three years look like nothing because every month you’re having another thousand, two thousand patients that are sending messages and saying, “thank you because now my epileptic daughter is feeling well.”

Six days after you take this medication, the clinic is calling up to follow up on that patient. That’s very important: “are you doing okay? Is the dosage working? How can we help you?”

So, then you’re thinking, “you know, yes, it’s gonna be tougher to get to the one million,” which is our plan, but then we’re going to have a million stories to share with everybody and I think that’s all going to make sense, but it’s always problem solving because you always think about the next stage.

You know, I was watching these documentaries on NASA, going to the moon and there are some people that have to think about the moon while they’re solving how to orbit the earth, and on the back they’re thinking well that’s great that we’re orbiting three times with John Glenn, but we have to think about going to the moon, and even today with landing on Mars, people are thinking “how do we actually have a man on Mars?”

So, I think it’s all about that passion, and all these problems, all these things, but it’s a unique opportunity. I mean Loren, we live in a country and you notice that, almost all our lives particularly in Colombia we produce commodity products. Our biggest exports are coffee, coffee beans, oil. Maybe, flowers are the one thing that we do provide value added, and we keep asking ourselves, “how do we make this economy grow?” And the only answer we give back to ourselves is “well we just keep growing more commodities.”

I was lucky enough to be able to go to school in the US, and I started thinking “well, why don’t we create something that’s actually going to create value?” That is, maybe we can change some part of this, and we don’t want to be the country that cultivates the most cannabis, I don’t want that to happen, I want us to be the country that develops the most cannabis technology, that has the best products, that has the best service, because that is exportable everywhere else.

Those things came to mind with my partners and me, my two co-founders when we started the company. I lead an amazing team that we have here, and everybody’s very motivated. When you feel down, because no, this is not easy, you just look at a couple of videos with these patients recording your stories, you’re thinking, “you know what? We have to keep going!”

Finance Colombia: You know, you’re right. I look at companies here, you look at the “resource curse,” and you look at countries that put out commodities. One of the problems with that is that if all you do is export crops and somebody else puts in the value-add somewhere else, then that’s also where the wealth is created. And you have a lot of countries, whether it’s in the Americas or in Africa or wherever—where they export crops, or raw materials, or petroleum, you look at countries that export petroleum, but they don’t have refineries. Colombia does have refineries, but Colombia still has to import refined petroleum products, even though there are refineries here.

And so when, like you said, when you can export a high margin product like a finished cannabis derived product, then you’re creating wealth obviously for your shareholders, but you’re creating the wealth in Colombia versus…”I’m going to, I don’t know, export—I mean coffee is great, but you export bags of coffee beans that are then roasted in Seattle or somewhere where they charge,  a zillion dollars or $50 bucks for a cup of coffee! So, I think that one of the…I look at Tecnoglass (NASDAQ: TGLS). That’s a company I respect a lot because they don’t just export the raw product, they export environmentally high energy efficiency, treated, finished products that are used in high-end, branded real estate. So it’s like you’re not just exporting a raw green crop, you’re exporting the finished product or you’re creating a finished product and so I look at that, and I think that Colombia needs more of that! So, the best success to you guys, I follow the company, we here at Finance Colombia have followed you for years and so it’s good to finally talk to you.

Álvaro Torres: Thank you Loren, well, you know, just on that last point remember poverty calls poverty. If you are always focused on that commodity, you have to reduce your price, you’re going to pay your people lower, you’re going to reduce your labor costs because you have to produce it lower. Tecnoglass is a fantastic company, I know them very well. I know some of the executives because they are not selling glass, they are building facades for buildings in Miami.

Finance Colombia: Exactly.

Álvaro Torres: So, that’s I think that’s a great point, we all need to think about it. It’s always a longer path, but this is not such a complex business. Medical cannabis the way we look at it, is clinics, and product, and service. It’s not something that’s so far out there because it’s just a new medication that we just reintroduced into the market, and we try to do with really good service. So we can have 50% month-to-month growth, since we started?

Hopefully, you can go and visit our clinic and you can see for yourself because once you get there, you’ll see that. It will tell you everything you need to learn about our company just going there.

Photos, except screenshot, courtesy Khiron Life Sciences

Finance Colombia: Why don’t you first give us a brief description of Demand Frontier and what the company does?

Juan Felipe Salazar: Demand Frontier is a digital marketing agency. What I mean by that is we really focus on the marketing automation and the lead generation side of the business. With a lot of the background that we have from the experience of some of the staff in the US, our goal is to provide four to five hundred customers with solutions on this front, especially when it comes to platforms as Marketo and Oracle, which are the two biggest platforms in the world. We use those to implement these strategies.

Part of the selling point was the Landing Plan here in Ruta-N, they made it so easy for a company to open operations.

Finance Colombia: So how did the company end up in Colombia?

Juan Felipe Salazar: It was a combination of a couple of factors. Personally, some of the people that are involved in the company had decided to move to Colombia for personal reasons, and just by true luck we end up talking to some of the partners in the states, that were looking to expand and just suggested that they come and check it out. I told them very clearly, I am not going to sell you Colombia. I am going to let Colombia sell itself. So we set up an agenda, they came the first week of February (2015) to Medellin, met with some of the local people here, you know, Procolombia and Ruta-N, ACI and honestly by the end of the week they were sold. They went back to the states on a Friday and called me and said ‘we are just revamping our business plan to quadruple our investment’…and that is what we did.

Juan Felipe Salazar is Demand Frontier’s Vice President of Latin American Operations

Finance Colombia: What role did ACI, Ruta-N and Procolombia play in getting you established in Colombia?

Juan Felipe Salazar: I think it was huge. They definitely had a big role in explaining what opportunities are available and also showcased companies that have decided to come here. Part of the selling point was the Landing Plan here in Ruta-N, they made it so easy for a company to open operations.

Then, when you get the infrastructure part down, you can worry about the legal and the hiring, which is a very important part, but you know, you have three big things to worry about. A big part of it is taken care for you. So that was a big piece. Obviously proving to ourselves early with the talent that we hired; hiring the talent and showing them the kind of quality work that we can produce with people here, and the rest is history. We had four people (in Medellín) in March and now we are almost 30.

Finance Colombia: That is seven and a half times growth. What are your projections over the next year or two?

Juan Felipe Salazar: Or goal for the next year is to get to a couple hundred people. That is going to be broken down into some of our areas. Outside of marketing and lead generation we also have an ERP practice that we are trying to grow out of a couple of customers in California, so that is going to be an areas where we are going to be staffing some people here, obviously our demand generation, lead generation side.

There are really two areas here where I see a lot of growth. Obviously the creative component, we can find a lot people here doing creative work and then the actual developers which are the people that are in charge of the marketing automation. They are actually the ones that work with the tools that we use. Those two areas are probably going to be the ones that explode the most. We are also working on the IT staffing side of the business and getting some of the development contracts for companies in the states that are looking for a nearshore solution to combat some of the offshoring that they had done in India. Obviously cost effective but also more than anything, efficient because of the communication and also effective as far as they can get some work done that they don’t have the talent to do in the states.

Finance Colombia: So its sounds that the talent here is adequate. A lot of questions that I get when I am outside of Colombia are because people are not aware. Colombia does not have a negative reputation for talent, it has no reputation. People are just not familiar with the talent pool here. What is your impression, what is been your experience of the ability to source the talent that you need whether that is creative talent or technical talent here in Colombia?

Juan Felipe Salazar: I think that—to me, what I have seen is the talent is there. Our struggle has been: what are the best avenues to find that talent? Where in the states you have very standard ways, like LinkedIn, Monster, and very specific recruiting methodologies that  source the talent. Here in Colombia it is a little bit more disorganized from that perspective. We are starting to find some of those channels, but honestly, for the first six months our growth was dependent on our network. It has completely relied on professors, or people at Ruta-N, or employees that we hire. And they say, ‘you know, we have some people you can get…’ which is fine, up to a point. But obviously that does not scale very well. But I think one thing that we found is once you get them you get them in the door, the ethical side of people here, the commitment to improvement, the commitment to customer service is really something. That is one of the strengths that we are playing to, by hiring here locally.

Finance Colombia: Some people think of digital marketing and they think of: ‘I got an email.’ They think of Mailchimp. Some people hear digital marketing and they think of a campaign for for Bud Light on Youtube. What is it exactly the digital marketing that Demand Frontier does?

Juan Felipe Salazar: The digital marketing arena is worldwide and it’s huge. There are easily two hundred different platforms that support all sides of digital marketing. Specifically our niche is lead generation and what I mean by that is obviously we don’t work in the B2C environment. What people are used to seeing in digital marketing or email marketing is: I buy something at Walmart. I buy a TV. They run all sorts of algorithms and they know I need a TV stand. So they are going to send me an email say ‘hey all TV stands are on sale,’ or the HDMI cable to hook up your TV. So that is the B2C arena that we don’t handle. That is really not our expertise. Our B2B arena is really more about understanding qualified leads for our customers. A: Understanding what they are. B: Helping to qualify those leads, and C: Creating marketing programs digitally that can reach the customer with the message that our customers are trying to portray. By doing those three things, providing them with a matrix really cuts down on the cycle of sales, and says, ‘hey, of these three thousand people that you have, these three hundred are really, really, really interested in your product and of those three hundred you are probably going to close 60 of these deals based on background or based on a matrix that we have used before.

The ethical side of people here, the commitment to improvement, the commitment to customer service is really something.

You know, especially in this day and age, the customer base is there. It is getting the right person at the right time. Obviously with these platforms you provide the matrix and the features that allow you to create that kind of strategic: ‘this company has buying cycles from this point to this point because of the history that they have. These are the decision makers; these are the people that you need to reach out to.’ How do we reach out to them? In what frequency? What kind of message do we want to reach out to them with? Or, what has worked in the past? So really providing that kind of strategy and tactical combination that allows them to really be able to say ‘hey, yeah, you gave me these 3,000 and those 300 sold.’ And obviously the way that we sell it is very easy. If we are effective, the return on investment on a lead generation campaign should be thousands of percent.

Finance Colombia: Most of your business, maybe all of your business has been with North American Fortune-500 clients.  What is your perspective on the growth potential in Latin America?

Juan Felipe Salazar: We are very excited about Latin America. Our strategy in Latin America is very simple. We have to socialize them as to what lead generation is for Latin American companies and some of these international companies are going to be leaders and more ahead in the curve, but still are laggards compared to the United States. My strategy specifically, and what I told our partners in the states is if I want to go talk to Bancolombia then I want to show them the progress and the success we have with Bank of America in the United States. It is a reference point. It’s a credibility you bring to the table that they want, and they know specifically that this is knowledge that we have on these sectors. We don’t want to be good for everybody. We are very much focused on the oil and gas, finance, banking and technology sectors. So, looking at a company like Argos, we definitely have to look out at how can we help a company like that. Make no mistake; it definitely is one of the customers that we want to have in our future. My point of view is to use 2016 as a way to socialize what lead generation can do for companies like that and then really start hoping to reel in some Latin American customers in 2017.