Cannabis: Verano is in a ‘thriving mode’ despite SAFE banking, regulation headwinds, CEO explains

Verano Holdings CEO George Archos joins Yahoo Finance Live to discuss the cannabis industry and regulation.

Video transcript

- Recreational marijuana is now legal in 21 states, including the 60 million-plus residents of two of the four biggest US states in New York and California, and yet the investor story remains challenging to say the least. The four biggest US cannabis companies, stock prices are down between 55% and 70% over the last 12 months with no legislative progress in sight.

Joining us now to talk about the investor story is the co-founder and chairman of one of those companies, Verano Holdings CEO George Archos. George, great to see you. Verano Holdings stock down today after reporting Q4 earnings. It's a familiar story in the industry. You've got record revenue on one hand, widening losses on the other. What did you learn in Q4?

GEORGE ARCHOS: It was a great year for Verano. I think a lot of focus last year was on safe banking and that passing. And federal reform, unfortunately, that didn't happen, despite all the momentum. And we didn't build our company based on federal reform. We're building a strong company that's going to be here for years. And we expect to thrive and not only survive in situations like this. So despite the economy being down and, you know, Verano is set up for a bright future. And we're really excited about it. We have a phenomenal team. We're really focused on free cash flow this year and knocking down debt. And we're also looking at great deals on the horizon. So we're excited about what's happening.

- I apologize, George. I said the stock was down. It is up 1% on those Q4 earnings. So apologies there. What would you tell skeptical investors in the space? What separates Verano from other companies in the sector?

GEORGE ARCHOS: We always build this with a long-term focus. For us, we don't do anything based on short-term bumps in stock. We always, unfortunately, take things the hard way. We're one of the only companies that own all of our real estate, or the majority of it. We've focused on our people, process, and products since day one. We started from the ground up winning licenses organically and building our business from our cash flow, which has been a little bit different from some of our other peers.

So we have a very strong foundation here. And again, like I said, last year at the end there at the tail end was a little disappointing. And I know investors are a little weary of cannabis. But there are a handful of companies out there that are going to remain to be strong. And in the current situation, to be perfectly honest, we're going to thrive.

We're well capitalized, strong balance sheet, good people. We're in great markets. We have a fantastic geographic footprint that we've set up over the last few years. We've built out our facilities. And we're poised for a really strong growth over the next few years despite what's happening. Cannabis has become a staple. We believe it's very recession proof. And we're excited about what's going to happen.

- How do you describe an environment as an operator? How challenging is it when you don't have traditional access to banking services, when you can't write off business expenses, just how difficult is that as an operator?

GEORGE ARCHOS: Since day one, we've always had the cards stacked against us. I mean, access to banking hasn't really been there. We deal with local banks, credit unions. But despite that, we've always been in an environment where we have to be in survival mode. And now despite safe banking and no federal reform, we're in thriving mode. Obviously, we have to deal with what's going on in the economy today and pricing pressures, inflation, et cetera. But a company like ours and a handful of others, we're really poised to succeed in this environment.

Unfortunately, what's going to happen here is a lot of smaller operators who don't have access to banking, who aren't well capitalized, we might see some failures there. And that's something that we don't want to see. A company like ours is helping new entrants to the space, social equity JV's that we're doing in Connecticut and other states where we're helping social equity applicants get their businesses up and running. But we haven't had any help on the federal side. And it's unfortunate. And I know it will happen sooner or later. But for right now, we're going to continue with our head down, run our business, and be very selective with our opportunities moving forward.

- What's your level of optimism on either federal legalization or safe banking? And what would be the message to those skeptical? And let's just focus on the Senate primarily because the House repeatedly passes safe banking. What's your message?

GEORGE ARCHOS: The messages are not helping the little guys. And to be perfectly honest, they're helping companies like ours that are larger because we are well capitalized and we have strong businesses and foundations. And they need to do this for the new entrants into the space. Yes, it will also help a company like ours. But really, to help these new social equity applicants coming into the space in all these different states, we need to have banking reform. That's, to me, a no brainer.

But we can't push anyone. So we're going to continue to lobby on our side, prove our point, show that cannabis is safe. We provide consistent products in these medical markets, adult use markets. And we're going to continue to do our job. And hopefully, when that time comes, we'll be able to enjoy that as well.

- I mentioned New York and California, which ought to be the example of others to follow. Instead, it's been the direct opposite. California about a decade in. The illegal market has just overtaken the legal. And it's bureaucracy and the black market that's just forced many MSOs to move out of that state. New York, it's early, but we're talking about 1,400 illegal operators, a handful of dispensaries. What went wrong in California? And is New York poised to follow the same path?

GEORGE ARCHOS: Well, to be honest, yeah. I mean, they're not cracking down on illegal operations. The whole point of putting legal operations into place is to make sure that our consumers have a safe, consistent product. And that's not happening. We lab tests all of our products in every state. California, there's so much gray market, black market. The government is not shutting them down. And it's very unsafe. And that's when you have difficult situations. And, unfortunately, some of that falls on us, even though we're doing everything right. And now New York is doing the same thing. You have 1,000-plus illegal operators creating a thriving black market.

So the state isn't getting the taxes that it should be for its citizens. And they're buying illegal product that's-- it might not be safe. You have all these issues with fentanyl-laced things going across the market, getting to kids. It doesn't make any sense. And in New York, for example, there are 10 operators that are legal medical cannabis operators that should be already flipped over to adult use, providing good safe product. And it hasn't happened yet. And what's the reason?

- It's astounding, isn't it? George Archos, Verano Holdings' founder, chairman, and CEO. Good to see you. Thanks so much.