In a time when giant multistate marijuana companies dominate the U.S. cannabis landscape, legitimate concerns exist that they will drive craft and small cultivators out of the legal cannabis industry.
But Michael Steinmetz, who founded California cannabis company Flow Kana in 2017, believes big-time capitalism – or at least his business model – can save craft growers.
Steinmetz, the company’s CEO, likens his business to ones such as Sunkist, Uber, Lyft, Whole Foods and others where a centralized entity aggregates and supports small distributors and shares the profits. In essence, they are for-profit co-ops.
So far, Steinmetz has successfully twinned capitalism and craft.
Flow Kana, a distributor of cannabis from Northern California’s Emerald Triangle region, completed a $125 million private raise in February and has dozens of small growers on its roster.
Is this a model for the future? Marijuana Business Daily spoke with Steinmetz about this and other topics.
How would you define “craft?”
The way we think about craft is really about the way the plant is cared for, and the commitment to the artistry that the farmers in this region have had for a while.
Can you grow craft cannabis indoors, or does it have to be outdoors?
I’ve heard indoor cultivators use the word craft, but it’s much harder to make that argument.
Outdoor and appellations and soil-grown all fit more in the definition of craft.
All of our farmers are totally outdoors, using natural elements, using the soil from the ground, regenerative practices.
Does production output also define craft?
The principals of craft, sustainability (and) organics are principles that I believe can scale.
I’ve seen farmers grow an acre or 10,000 square feet, and they grow it exceptionally well.
Loving care and attention are what set craft apart from larger commercial grows.
Are you using large-scale automation and removing the physical presence, or do you have people on the ground touching and caring for the plant?
Can small, craft businesses survive in the future?
We don’t see large-scale cannabis as the future of cannabis.
We see the model as aggregating all of these small farmers to collectively bring massive amounts of craft cannabis to the market.
Our model proves you can do craft at scale. The whole ethos or vision of the model is that we can grow in small batches yet use the power of centralization and technology to reach the global scale to compete with other players.
We just hope that we as an organization can rally enough farmers together quickly enough and take it to market efficiently enough to compete with the larger operations coming online.
Is “co-op” the right word to describe your model?
Yes. The co-op model has been used for centuries.
The idea is to bring together smaller operators so you can gain economies of scale – buying power for nutrients, soil.
The co-op value has shared values, so if we create value, its shared proportionately among contributors.
The two concepts of co-ops that are powerful are shared value and economies of scale and buying power.
The challenge with cooperatives is they’re hard to capitalize because they’re owned by members – so they need to find money from members – and the governing structure is very difficult and cumbersome.
How did you make this model work in cannabis?
We like to consider ourselves as the cooperative of the 21st century, and we’re mirroring our model very similar to Sunkist. We hired the COO of Sunkist, who is now the COO of Flow Kana (John Striff).
Sunkist is known as the biggest citrus company in the world, yet they don’t grow a single orange. They have more than 3,000 citrus farmers who grow the oranges and sell first to packing houses, which grade and sort the oranges.
The best oranges go into crates bound for supermarkets, the lower-quality oranges go to the juicers, and from there, the juice gets extracted at scale.
We are the same. We don’t grow a single gram of cannabis; we partner with master craft farmers.
We have a series of aggregation hubs that are like Sunkist packing houses where we take in the product, quarantine it (and) lab test it.
Once the product clears testing, we trim it, grade it and sort it. The top flower gets sorted into jars and lower quality go to pre-rolls or extraction.
The value of our model is that we are scaling and putting capital and resources into everything that happens postharvest.
What about pre-harvest, during growing?
We are a for-profit that can get capital from outside investors yet operate with cooperative values.
We don’t own land or have a cultivation team. But we have a big farmer-relations team, so we are basically hand-holding farmers through the processes of buying soil, nutrients and other inputs at scale.
We do clone financing, so we buy all the seed and starts and clones and work with farmers to produce a diverse set of genetics that the market wants.
How do you set prices and pay your farmers?
We operate like a co-op where, once our costs are covered, the leftover profits get spread out to members.
We don’t buy from our farmers at the bulk commodity price.
We give kind of a down payment to help the farmer with cash flow and then take on product, and then we add value to it. We put it into a jar, a pre-roll, a vape pen.
We’ll find the best avenue to market for that product, and then we take our wholesale price minus our service fees and then we’ll pay the farmer.
This allows the farmer to win on the upside of what we create.
For example, we do a lot of white labeling. We do a white label for Willie Nelson and for Dr. Bronner’s.
Most of these get a premium in the marketplace, which trickles back to the farmer.
Is this co-op model being replicated?
We hope to inspire others. We think this model can be disruptive in cannabis and agriculture as a whole.
This interview has been edited for length and clarity.
Omar Sacirbey can be reached at [email protected]
(You can read more about the craft cannabis sector in the August issue of Marijuana Business Magazine.)
Written by Omar Sacirbey
Marijuana Business Daily