Khiron Life Sciences (KHRN.V) was back in the news Wednesday after announcing plans to construct a new state-of-the-art cultivation and processing facility in Uruguay.

If Uruguay doesn’t ring a bell, it’s the country sandwiched between Brazil and Argentina. It’s tiny as far as Latin America is concerned, but strategically located (and well known to soccer fans for its steady stream of World Cup appearances).

For Khrion, Uruguay will serve as an important cog in the medical cannabis supply chain, both regionally and globally.

In an official press release, Khiron Life Sciences announced Wednesday that it has commenced construction of a 105,486 square foot cultivation and processing facility in Juan Lacaze, Uruguay. The new facility will allow Khiron to expand its production capacity by up to 17 tonnes per year, aiding in its ambition to become a global dispenser of medical marijuana.

The facility includes a large processing plant for managing pharmaceutical-grade crops. Khiron says the facility will align with good agricultural practices (GAP) and good manufacturing practices (GMP) guidelines.

Why Uruguay

If you’re not familiar with the happenings of the marijuana industry, Uruguay may seem like an odd selection for a major processing facility. After all, why would you pick Uruguay when you have two massive markets (Argentina and Brazil) on either side?

Well, Uruguay was the first country to fully legalize marijuana. The country officially ended prohibition all the way back in December 2013. Less than a year later, the government was already registering so-called growers’ clubs, which allowed companies to start producing the green plant.

So, Uruguay is considered a mature nation as far as legalization is concerned.

Alvarro Torres, Khiron’s chief executive, says the Juan Lacaze facility will allow his company to build a “dominant position in Latin America and further expand” its footprint overseas.

“Uruguay is poised to become a key source to supply the global medical cannabis industry. Our production in the country will target domestic use in Uruguay and export across one of the world’s largest trading block, beginning with export to Brazil, home to 208 million people, and from there, we expect to move quickly across the bloc’s trading countries in Latin America.”

–Alvarro Torres

Although Uruguay hasn’t attracted the same level of investment as other marijuana regions, some analysts believe it could be the first to reach $1 billion in annual exports of medicinal cannabis. This could happen in as little as five years thanks to favourable regulation.

KHRN.V stock update

Shares of Khiron surged in post-Labour Day trading, climbing 6.3% on Tuesday to close at CAD$1.53. The gains were commensurate with the North American Marijuana Index, which climbed 3.5%.

Trading in KHRN.V was up nearly threefold on Tuesday. Nearly 1.28 million shares traded hands in the first session back from the holiday compared with an average of 483,593.

KHRN.V is down 63% from its yearly peak but is virtually break-even for 2019. Like other marijuana plays, the stock has been subject to extreme volatility.

That being said, KHRN.V operates in the more established medical marijuana sector, which means it’s not a speculative investment. Medical cannabis producers have access to bigger markets with far less regulatory constraints than those trying to break ground on the recreational side.

At current values, KHRN.V has a total market capitalization of $174.3 million, making it one of the more established marijuana plays.

–Sam Bourgi

Full disclosure: Khiron Life Sciences is an equity.guru marketing client.