Michael Steinmetz was uncertain about inviting his grandmother to visit his marijuana factory in Mendocino County.
Masha Steinmetz is 89 and an observant Jew. She cared for Holocaust victims as a nurse in Israel after the war — it’s how she met her husband, an Auschwitz survivor. Though originally from Romania, she has lived most of her life in Venezuela, a predominantly Catholic country where cannabis is taboo to many.
For her visit to Mendocino, she brought enough kosher food to last her four days at the rural facility, off an unmarked road about 2½ hours from San Francisco.
“I thought it was going to be a shock,” the younger Steinmetz said, sitting on a couch in his living room one gray, drizzly day in December. We were just a short walk from a cannabis processing floor, where about a dozen employees inspected, sorted and packed jars of marijuana and stuffed prerolled joints using long, thin sticks.
Steinmetz pulled out his smartphone to show me a photo of himself with Masha. They’re wearing white lab coats and holding giant bags of unprocessed cannabis flower. Both are grinning triumphantly.
“When I told her about the medical benefits and she saw the level of sophistication” at the facility, Steinmetz said, “she was pretty proud.”
California’s king of cannabis is a nice Jewish boy from Caracas, Venezuela, with an engineering degree from Carnegie Mellon University. Everyone calls him Mikey. He’s worked at NASA’s Jet Propulsion Laboratory and was an investment banker for Merrill Lynch, though neither of those jobs quite suited him. Ultimately, he said, he wanted to engage his “entrepreneurial heart and spirit.”
Now 36, Steinmetz is the co-founder and CEO of Flow Kana, one of the hottest privately held cannabis companies in North America, and one of the largest in California. It has taken in $147.5 million in investment funding since its founding in 2014, according to startup tracker Crunchbase, though Steinmetz says the total is closer to $175 million when it includes early investment stages.
Though the company would not release revenue figures, in terms of size it’s in the same “peer group” as CannaCraft in Santa Rosa and Caliva, the San Jose company backed by the likes of Joe Montana and Jay-Z, according to Peter Rosenberg, who heads mergers and acquisitions for Viridian Capital Advisors. He is a former cannabis venture capital investor.
“The brand is well known. It has good penetration within the California dispensary market,” the Marin County resident said.
The trademark opaque brown jars and hand-packed prerolls (in recyclable aluminum containers, of course) are ubiquitous at weed stores in the Bay Area and across California.
High Times magazine described the product distributed by Steinmetz, who shuns indoor grow facilities in favor of sun-grown, as “the best weed under the sun.” After recreational marijuana use was legalized in January 2018, Flow Kana became the top-selling cannabis flower brand in the state. (As opposed to oils, edibles, tinctures, lotions and vapes, cannabis flower is simply the marijuana plant after it’s been grown, harvested, cured and trimmed. It’s the sticky green buds that you roll up into a joint, or pack into a pipe, light and smoke.)
“We’ve been called the Willy Wonka of weed,” Steinmetz told a “60 Minutes” correspondent who interviewed him at the factory for an October story. He’s also been featured in the New Yorker, Forbes and Men’s Journal, which crowned him “the new king of weed.”
Flow Kana does not actually grow the marijuana. The company buys it from approximately 200 private farms in the historic epicenter of the once-illegal pot haven known as the Emerald Triangle — the sparsely populated, hilly and fertile region of about 10,000 square miles in the northwestern corner of the state covering Humboldt, Mendocino and Trinity counties.
Rosenberg said its unique business model provides a crucial step in the supply chain.
“What [Flow Kana] has done is aggregate all of these independent farmers, who have plant biomass to sell, but they don’t necessarily have a brand. These companies really don’t have the capital — the resources — to be able to do what Flow Kana can do for them,” Rosenberg said.
“It’s incredibly challenging and expensive to build a brand. So by selling your product to Flow Kana, they become your de facto brand.”
Flow Kana focuses on “craft” cannabis, which is grown outside on small farms, without pesticides, often by families who have been doing it for generations. Each jar names the farm that grew its contents — for example the popular strain Wedding Cake, an indica-hybrid considered an appetite stimulator grown by Trinity Trichomes in Trinity County. Or Razz Ripple, a sativa-hybrid with a “deliciously smooth raspberry taste,” the Flow Kana website says, that offers a “profound sense of awareness” and is grown by StarSong Farms in Mendocino.
Among Flow Kana’s partners are HappyDay Farms, another family farm 3,000 feet above sea level in northern Mendocino that also sells vegetables at local farmers markets; and Moon Made Farms, a small farm in Humboldt that emphases “lunar farming,” using phases of the moon to plan planting schedules.
Daniel Stein, a farmer who described himself as a proud “New York Jew,” is another one of Flow Kana’s partners. He and his wife, Taylor, own and operate Briceland Forest Farm, an off-the-grid homestead in the hills of southern Humboldt County where they grow vegetables such as tomatoes, onions, broccoli and greens for sale in farmers markets, as well as about 10 different strains of marijuana. It’s all done with a focus on sustainability, using “no-till” farming practices that are believed to preserve soil health.
Stein has grown cannabis for more than 20 years. “It’s always been a small way to subsidize doing the other work that I found important in the world,” he said. One day he would like to sell his cannabis directly to consumers, but because of the regulatory landscape it would be extremely difficult if not impossible to do so.
Using a distributor like Flow Kana gives him peace of mind.
“As a farmer with a young family, my desire and my focus is to stay on-farm, and work on doing the best I can to take care of the land that I’ve taken on as a steward,” he said.
“I’ve been propelled into way more bureaucratic mire than I would ever choose to” as a cannabis cultivator, he said. “Flow Kana allows me to not have to deal with playing the game of trying to run around and sell my product in a [difficult] market.”
For many of Flow Kana’s farmers, cultivating cannabis legally represents a brave new world. Many had to contend with drug raids during “prohibition” — the decades, beginning mostly in the 1960s, when cannabis cultivation in the Emerald Triangle was done under cover.
Growers battled the Drug Enforcement Agency and powerful law enforcement task forces like the Campaign Against Marijuana Planting, which used aerial monitoring technology and often conducted helicopter raids in the dead of night. Some of his farmers have “nightmare stories,” Steinmetz said — one of his farmers, Johnny Casali of Huckleberry Hill Farms, spent eight years in prison after being sentenced in 1996 for marijuana cultivation.
It’s a legacy that Steinmetz admits is not his. He is cognizant of it, though — and of those who remain behind bars for what has become a cash cow. Last October, Flow Kana hosted a TED Talk-style speaker series called “Flow Talks” on its campus. Called “Cannabis as a Catalyst for Change,” it featured panel discussions with Snoop Dogg, Black Lives Matter’s Opal Tometi and Karim Webb of 4thMVMT, an organization that helps minority entrepreneurs open cannabis businesses.
In 2018 alone, more than 660,000 people were arrested in the U.S. on marijuana charges, according to the Drug Policy Alliance. “I don’t have that legacy,” Steinmetz said about those who had been most impacted by America’s drug wars. “All I can do is play my part to help reverse that, and to help honor that.
“If we build this industry with suits and ties and Wall Street, and forget the people that are in jail for actually giving us the plant for the last few decades, that’s a loss in my mind,” Steinmetz said. “That’s a failed new industry that we brought together. We have to remember the old, we have to give thanks to the old, and give credit to the old.”
On the sprawling, rural campus that Steinmetz and his partners named “Flow Cannabis Institute,” employees ride around in what look like all-terrain golf carts, skipping from warehouses to construction sites to offices to residences, where a handful of executives live (most have second homes in the Bay Area). There is a lake with canoes and a swimming dock used frequently in summer, when highs near Ukiah average in the 90s; a “glamping ground,” and even a refurbished 1920s-era tavern called the Big Dog Saloon, with barstools made of reclaimed redwood stumps.
With the help of investors, Steinmetz purchased the 300-acre property in 2017. The campus became Flow Kana’s processing hub, and Steinmetz and his wife, Flavia Cassani, a filmmaker, moved in a day after closing (they also keep a home in San Francisco).
It’s situated on the former home of Fetzer Winery, a pioneering company that helped put Mendocino County on the wine map in the 1960s and became one of the largest wine producers in the country. Fetzer sold for $238 million in 2011.
The Golden State is the top-grossing cannabis state in the country, with over $3 billion in legal sales in 2019.
Steinmetz said Mendocino reminds him of Venezuela. It’s “green and mountainous, lush,” he said, with “vibrant rivers and creeks.” But there were also real business considerations behind the purchase. Before moving north, Flow Kana processed everything at a “little space in Oakland,” Steinmetz said, a warehouse space with connected offices. It’s where the company still keeps its corporate headquarters, and it also serves as a distribution hub for Bay Area retailers. But a brand new, rural campus — especially one with about “200,000 square feet of usable industrial space,” Steinmetz said — would enable the company to grow. Fast.
The cannabis is processed on a production floor at the center of the campus. It looks at first like any factory floor, but instead of assembling furniture or packing jars of peanut butter, employees are sifting through containers of cured marijuana to pick out morsels or “nugs” appealing enough to sell outright; assembling prerolled joints with the rest; and looking after turnstiles and mechanical arms that drop marijuana into vessels ready for retail.
After the product is inspected, processed and packaged, employees load it on trucks to be shipped to distribution hubs in Sacramento, Los Angeles and Oakland.
Steinmetz’s house, a white colonial that employees refer to as “the White House,” is the same one that the Fetzer family posed in front of for family photos decades ago. During our interview, the home was abuzz, as Cassani shuttled between the kitchen and living room, speaking to assistants while trying to keep the couple’s infant daughter from fussing. A plate of arepas rested on the kitchen counter.
Steinmetz was dressed casually in a V-neck sweater over a T-shirt. He wore a black baseball cap bearing what looked like an Adidas symbol but was actually a marijuana leaf, and a belt decorated with the Grateful Dead’s dancing bears.
We had met before, last May, at a San Francisco street protest against the war on drugs. It was then that Steinmetz told me he is Jewish — he said his upbringing was more spiritual than religious. At the time, the power struggle in Venezuela between the socialist strongman Nicolás Maduro and opposition leader Juan Guaidó was in the headlines. He called the situation “catastrophic” and said it was crucial to “get Maduro out.” He wore the Grateful Dead belt then, too.
Steinmetz greets visitors with a hug. He speaks quickly and enthusiastically. He says entrepreneurship is not purely about making money, but is “an opportunity to create and drive change.” He likes to read business books like “Good to Great” by the business consultant and author Jim Collins, one of his favorites. He is used to speaking to reporters, investors and prospective investors. He uses a lot of precise figures when he talks: percentages, square footage, exact years and dates. He moves seamlessly in and out of startup terminology and jargon, throwing out terms like Series A and Series B funding rounds, convertible note rounds, “cap-ex” (capital expenditures), and TI improvements (tenant improvements), even when speaking with a layperson.
It was about a week before Christmas, and stockings hung from the mantle and two 3-foot nutcrackers stood astride the fireplace. A small Hanukkah menorah poked out from behind the tinsel. “We have both,” Steinmetz said with a laugh. “My parents are both Jewish, but Venezuela is a predominantly Catholic/Christian country. So I was raised with both a hanukkiah and a Christmas tree.” He said he celebrated Shabbat dinners and Jewish holidays with his grandparents.
Steinmetz says that while Venezuela has a conservative attitude toward marijuana, things were different in his family. “My mom consumed cannabis for medical reasons,” he said. “I grew up in a cannabis-friendly home.” He was into cannabis culture long before he became involved in the business and still enjoys smoking weed.
Steinnmetz’s decision to enter the cannabis industry didn’t come via a lightbulb moment; it was more like a gradual awakening.
Between 2010 and 2012, he was doing two things at once: He was running a distribution company in Venezuela that traded stevia, the plant-based sweetener, and he was working on a photo sharing app similar to Instagram that never materialized. He and his wife alternated between Caracas and Palo Alto, spending around three months there and three months here.
With his medicinal marijuana card, he visited the early patchwork of dispensaries operating in the Bay Area under Prop 215, the “Compassionate Use” law approved by voters in 1996 permitting medical use. Every time he returned to California from Caracas, he would see new developments in the industry. “New dispensaries, new products, new brands,” he said. “I just felt the growth and the momentum of it.”
When he realized California came close to legalizing recreational use under Prop 19 in 2010, it gave him an inkling of where the market might head. “I thought, wow, this is really going to happen in our lifetime.”
In 2013, he experienced just how much money could be made in the industry. He volunteered as an unpaid business consultant at a medical dispensary in the East Bay. It took in between $80,000 and $100,000 in sales every day. Cash.
“It was so unsophisticated, so mom-and-pop,” he said. “Inventory everywhere. It was a disaster.”
But they were making so much money that they didn’t really care. There were no taxes, no excise tax or cultivation tax. There were no burdensome regulations. So it was a lucrative space to be in.”
In 2014 he co-founded Flow Kana with two fellow Jews: Adam Steinberg and Diego Zimet, a Uruguayan who built the company’s first website. Steinmetz said he met Zimet through a network of Latino Jews in Palo Alto.
“He was a good friend of mine,” Steinmetz said of Zimet. “When I honed in on this idea, I tapped him and said, Are you interested in jumping in here and making this happen?”
In many ways, California’s Gold Rush of the 19th century is now its green rush of the 21st The Golden State is the top-grossing cannabis state in the country, with over $3 billion in legal sales in 2019. That’s $1 billion more than its nearest competitor, Colorado, and about three times more than all of Canada.
And yet, stringent regulations, burdensome taxes and prohibitive local laws still severely hamper the industry’s growth, Steinmetz and other cannabis business leaders say. In order to actually sell cannabis within a given municipality, it has to be approved by local officials. According to Marijuana Business Daily, about two-thirds of municipalities still prohibited retail sales as of last year. Marin and San Mateo counties, for example, prohibit marijuana storefronts.
Simply put, there are not nearly enough legal retailers in California to satisfy the state’s massive appetite for weed. As a result, the illegal market in California still takes in about $8.7 billion per year, more than twice as much as the legal market, according to the research firm BDS Analytics. Steinmetz, citing compliance laws and taxes at nearly every stage of the supply chain, says it is difficult to compete with illicit dealers. He called the situation a “disgrace.”
Partly as a result of sluggish reform efforts, the cannabis industry in California, and across North America, is at an inflection point. Investment reached a fever pitch in 2018 with more than $13 billion raised, according to Viridian Capital Advisors. But despite big promises, marijuana remains banned under federal law, and companies still can’t trade across state lines, let alone international borders. Expansions into huge markets in Germany, Australia, Denmark and Jamaica simply haven’t occurred. And traditional banks still refuse to cooperate with cannabis companies, no matter how lucrative they are.
As a result, growth has been disappointing, and promises are not being kept. Giant conglomerates, primarily in Canada where cannabis is federally legal, saw their stocks fall precipitously last year, CNN reported. Companies like Canopy Growth and Cronos Growth, which is partially owned by the company that owns Marlboro, saw stock prices fall more than 60 percent. And Tilray, the cannabis company backed by Peter Thiel, saw its stock price plunge from a high of $148 in the fall of 2018 to just $16 last month.
Investors across the industry got skittish. In November, Flow Kana had to lay off about 20 employees, most at the corporate office in Oakland. It joined a number of other cannabis companies in the state in a series of layoffs that left hundreds of workers jobless.
“A lot of Canadian companies have sucked up a lot of money — these big conglomerates with lofty valuations, lofty goals and lofty promises. And they’ve been selling air, to be honest,” Steinmetz said. “They’ve created this massive indoor infrastructure in Canada, a country not known for its ag production. They’re sitting with rotting inventory, and they’re having to do big write-offs.”
As a result, “investor sentiment, globally, is asking, what is this industry? Are people making money? Are people lying?” he said. “Are there authentic people with integrity in this space? There’s a little bit of skepticism in cannabis right now.”
Still, there is good reason to be optimistic about the future of California weed — and Steinmetz certainly is. Californians spend more than $1 billion on marijuana each month, between legal and illicit sales. Over the next four years, legal sales in California are projected to more than double.
So what does Steinmetz envision for the future of his business? He says he does not make decisions thinking of a buyout. Instead he plays “the infinite game.”
“Our decisions are five, seven years out,” he said. What that means is that even though he’s operating in today’s constrained cannabis environment, his sights are trained on tomorrow’s industry: the end of federal prohibition, the slackening of local regulations and the beginning of a new day for cannabis, when it will be treated like any other regulated substance.
Almost everywhere you look at Flow Cannabis Institute, there is temporary fencing, dirt movers, laborers and the din of construction. The company is expanding beyond its core product, renovating an 18,000-square-foot warehouse to manufacture concentrated oils, for use in popular products like vape pens and edibles. It is working on a 40,000-square-foot showroom, the size of an airplane hangar and five stories high, where Fetzer Winery kept its fermentation tanks.
He envisions distributors and retailers from all over the world visiting Mendocino County to browse “just shy of a million pounds” of cannabis in the showroom, displaying “thousands and thousands of different strains” at “hundreds upon hundreds of different price points.” Ultimately, Steinmetz is placing a big bet on California.
“The long-term dream is to make it accessible for out-of-state, and from other countries, to be able to access the best cannabis in the world from the best growing region in California,” he said. “I think nobody’s going to care for Nebraska-grown cannabis, or Massachusetts-grown cannabis, or indoor-grown cannabis somewhere else.
“We want to put the Emerald Triangle on the map, globally.”