Cannabis business leader Mikey Steinmetz has big ideas for the industry

Michael Steinmetz and Flavia Cassani with their son Mia Steinmetz at Flow Kana in Redwood Valley, Calif. are seen on February 26th, 2020. (John Storey / Special to The Chronicle)

If Mikey Steinmetz and Snoop Dogg aren’t the oddest couple in the cannabis sphere, they’re awfully close to it. But sharing a stage at the inaugural Cannabis as a Catalyst for Change symposium last fall, the two seemed well matched for their impromptu chat in front of the hundreds of guests.

The usually low-key Steinmetz — CEO and co-founder of the host company, Flow Kana, which he started in 2015 with his wife, Flavia Cassani — was clearly excited to be with the rapper-personality-cannabis entrepreneur, who was even more chill and gracious than his well-known laconic persona would suggest.

While their cannabis orbits obviously intersect, they’re coming from different directions. Snoop drops in, lending his influence from the mountaintop of celebrity. Steinmetz, 35, has built Flow Kana from the ground up.

The symposium, on the Flow Kana Cannabis Institute grounds in the Redwood Valley just north of Ukiah (Mendocino County), is one of the ambitious CEO’s many initiatives to move cannabis culture and commerce into the mainstream. He’s been strikingly successful, but the continuing challenges of California’s shifting regulations and a stubborn black market are threatening his vision.

“I believe this region is going to be known for its quality and for its heritage,” Steinmetz said later, after a dinner with local farmers at a hillside ranch house overlooking the scenic property. He and Cassani often entertain guests and the press here. Steinmetz, through a mixture of charisma and prominence, has become a significant voice in cannabis business and culture.

In February 2019, Flow Kana announced a $125 million infusion of capital, which it said was the largest private funding round for a privately owned cannabis company in the United States. The company has raised a total of $175 million since 2014.

“We’re really invested in the infrastructure in California. We believe California is what matters in the long term, and we make decisions for the long term,” Steinmetz said.

Just over a year ago, Flow Kana opened the world’s largest cannabis processing center on the site of the former Fetzer Winery in southern Mendocino County, where Catalyst for Change was held. In the mornings, soft wisps of fog drift over the green hills and vineyard-covered land surrounding the Flow Kana campus. Steinmetz and his family have a home on the grounds.

The sprawling 80-acre campus includes grading, processing, lab testing, manufacturing and distribution, essentially bringing together the entire sun-grown cannabis supply chain. They market their own brand of cannabis products, flower, pre-rolls, etc. Flow Kana products are carried in 470 licensed California dispensaries and it will soon produce a variety of cannabis products including vapes, concentrates, and tinctures.

Though Flow Kana doesn’t release employee data, the company believes it is the second-largest employer in Mendocino County. It’s modeled after Sunkist Growers Inc., the most diversified citrus processing and marketing company in the world, and the largest shipper of fresh produce in the United States, which doesn’t grow anything.

Similarly, Flow Kana doesn’t grow cannabis. It does, however, give more than 200 independent farmers throughout the Emerald Triangle (Mendocino, Humboldt, Trinity counties) a centralized place to come to market with their crops. That’s the result of an epiphany Steinmetz had after a couple of road trips through Northern California’s cannabis-growing region.

“I came up here to the Emerald Triangle, and I was just blown away by the ecosystem of the community and of the farmers and seeing cannabis in its rightful place under the sun,” Steinmetz said. “To see these farmers growing cannabis totally off grid, off the beaten track, fully sustainable, solar panels, rain catchment, fully diversified. Having cabbage and carrots and tomatoes and celery and cucumbers and strawberries and sunflowers. Growing your own soil and practicing regenerative agriculture.”

Simon Evers, one of the young farmers at the ranch house dinner, runs the nearby Elysian Fields Farm with his wife, Jenn Gray. They have been working with Flow Kana since the company first came to the region.

“Initially what struck me was just the fact that they were all about sun-grown,” Evers said. “In general, it seems the conventional thought is that indoor is top shelf and sun-grown is just like mid-level quality. I don’t think that’s true.”

Flow Kana has been consistent in presenting its mission, stating it is “creating the first sustainable, sungrown cannabis brand that embraces California values and the small independent farm ecosystem. Flow Kana partners with and gives scale to craft farmers in Northern California, who focus on beyond organic farming practices.”

Also important for Evers was that Flow Kana did what Steinmetz said it would do.

“They followed through, they were professional, they paid us on time, and that was important,” Evers said. “They gave us the documentation that we needed, just simple stuff. They were doing it by the book, and that’s what we wanted to do.”

Steinmetz was born and raised in Caracas, Venezuela. He came to the United States after high school to study engineering and finance at Carnegie Mellon University. After graduating, he soon realized he had little passion or interest in either engineering or banking. He eventually started a food distribution company in Venezuela, but visits to California had seduced him. He wanted to build a life here. He thought he’d live in Silicon Valley and develop social media apps, but volunteering at a fledgling cannabis dispensary followed by two trips to the Emerald Triangle changed all that.

The first trip opened Steinmetz’s eyes to a culture that had hidden from the world for decades because of its illegality.

“I started to realize that, ‘Wow, in this region, in this Emerald Triangle that is the geographic size of Ireland, between Mendocino, Humboldt and Trinity County, there are 53,000 cannabis farmers that collectively produce 80% of the cannabis consumed nationwide.”

Even more astonishing was that this huge production was coming from a fragmented, unorganized amalgamation of small farmers using holistic, sustainable practices not thought conducive to commercial viability. Thinking perhaps he’d stumbled into a unique cadre of high-minded growers, he took a longer, more extensive trip to the area with his soon-to-be wife, Cassani. They came away even more impressed with the lifestyle and cultivation culture they encountered.

Cassani, also from Venezuela, told me, “They’re genuinely in a relationship of love with the land. It’s like being attuned to not only the land but the natural elements, the planet Earth, connecting to the animals, respecting them and seeing life, especially human beings, as just one part of the ecosystem, not just that element that controls the planet.”

From that three-week immersion in the culture of the Golden Triangle, Steinmetz came away with three foundational concepts on which he has built Flow Kana.

“One was this area and this region and this heritage and this legacy is one of a kind,” Steinmetz said. “It can’t be replicated.” His business sense told him he could build a brand telling the honest story of the farmers.

Second, he realized, “If I bring these farmers together, we would have enough volume to compete with the bigger guys.”

Last, his banking and food distribution experience allowed him to dissect the business models in place and see their weaknesses. The farmers knew how to grow their crops and be conscious stewards of their land, but “what was really expensive for them was everything post-harvest,” Steinmetz said. Those elements included drying, curing, trimming, processing, packaging, distribution, sale and marketing. If only there were a place that did all that and allowed the farmers to focus on cultivating crops. Steinmetz saw where he could fit in and flourish.

In April 2018, Flow Kana’s processing center came online, manifesting Steinmetz’s vision of a centralized facility providing packing, labeling and distribution services to partners across the industry, including dispensaries, brands, manufacturers, and other distributors.

Along with running his business, Steinmetz has also become a forceful advocate pushing the government to help the industry rather than handicap it.

“Let’s put it this way: The system is broken, but unintentionally broken,” Steinmetz said. “I do believe that the legislators and Gov. Newsom and his administration have every intention to make this work.”

The most significant problems compound each other. Regulations are inconsistent as incorporated cities can have policies for regulating commercial cannabis activities that are different from county regulations. There are also state and federal laws that often overlap but don’t necessarily complement each other. Taxation occurs at almost every step along the supply chain, choking off growth.

“There’s about a 45% to 50% tax discrepancy between legal shops and illicit shops,” Steinmetz said.

Last year an audit by the United Cannabis Business Association estimated that $8.7 billion would be spent on unregulated cannabis products in California in 2019, compared with just $3.1 billion spent on cannabis sold by legal businesses. The audit found approximately 2,835 unlicensed dispensaries and delivery services operating in California, while the Bureau of Cannabis Control says there are only 873 cannabis sellers licensed in the state.

“The majority of the demand is still in the hands of the illicit operators, and that’s a problem,” Steinmetz said.

The black market doesn’t deal with the regulatory tax layers, so it can offer products for less than suppliers who are trying to be compliant. “That’s the No. 1 goal of legalization: to eliminate the illicit market,” Steinmetz.

Another issue is local controls of the retail permitting process. “You first have to get licensed by the city and the locality or the county, and then you get licensed by the state. Right now, we have very few retailers because most of the localities of the state have not come online. We’ve had three years for cities and counties to get their act together. Still, almost 80% of the state doesn’t have a regulatory system,” Steinmetz said.

The state’s slow-motion response last year forced the contraction of a number of midsize cannabis companies, including Flow Kana, which reportedly laid off up one-fifth of its workforce. Steinmetz wrote a statement for the Sacramento Bee about the situation that accompanied a news story about the industry’s troubles.

In response to COVID-19, the company has significantly reduced the number of people in its workplaces to decrease risks of exposure. The production facility has undergone a deep industrial sanitation cleanse. Anyone working there is required to observe CDC recommended precautions. There are strict rules about personal space and contact. Any employee who can work from home is working from home.

Even though clouds were rolling in, Steinmetz was optimistic enough to push forward the Cannabis as a Catalyst for Change symposium in September. Part industry conference, part influencer meet-up and part party, the event drew major players from across the cannabis spectrum. While Snoop Dogg’s surprise appearance lit up the crowd, thought leaders such as green architect Jason McLennan and civil rights activist Winona LaDuke were also on hand. So were author Steven Kotler and Black Lives Matter co-founder Opal Tometi. Research scientists mingled with venture capitalist investors. There was cannabis sampling in the Old Dog Saloon, once the Fetzer tasting room. Ideas around cannabis and conscious capitalism were in the forefront, just as Steinmetz had wanted.

“This industry is going to be fully mainstream,” Steinmetz said. He predicts that soon, like alcohol, signature brands and products will retail in pharmacies and supermarkets. He believes California will always be the important market and producer of cannabis products but that it is impossible to have a five-year plan for an industry so much in flux.

“I try to think about our business as working with a compass, not a roadmap. A compass points in a general direction, general mission, general vision and kind of moving forward and being opportunistic along the way.”

He also knows larger companies are looking to make quick profits by buying up existing businesses or land and turning them over.

“We’re not in it for a quick flip. A business that has a long, infinite horizon will make fundamentally different decisions,” Steinmetz said.

“At Flow Kana, we like to say that we play for the infinite game.”

Marcus Crowder is a Sacramento freelance writer.

Marcus Crowder San Francisco Chronicle