An uncertain future can breed both optimism and apprehension, and five months after the passage of Proposition 64, nothing is as uncertain as how California’s budding recreational cannabis industry will develop in the years to come. Cannabis growers in the Emerald Triangle are eager to inaugurate the coming era of fully legal weed, but they sometimes express an anxiety as old as the Industrial Revolution.
Some cannabis entrepreneurs worry that legalization of commercial recreational marijuana will invite investment capital from outside the area to establish giant, vertically integrated corporate behemoths with economies of scale that will enable them to fatally undercut and crush independent local growers. Think the Standard Oil or Walmart of weed.
But the nature of the infant industry is still uncertain, and the proverbial whale may not eat the minnow after all. To avoid that fate, however, the minnow may have to mimic some of the whale’s tricks.
Cannabis distribution company Flow Kana will begin construction within two months of the Flow Cannabis Institute, an ambitious processing and distribution facility in Redwood Valley that, if founder and CEO Michael Steinmetz’s vision bears fruit, will enable the area’s small-batch craft farmers to process their cannabis on an industrial scale. With a centralized hub offering to unify all steps in the supply side of the cannabis market after cultivation, from testing to distribution, cultivators will be able to realize the kind of production volume and business efficiency that will be essential to compete with large-scale corporate operations.
While marijuana prohibition has exacted a heavy toll in terms of public finances (about $14 billion a year in government enforcement costs and foregone taxes, according to a 2005 study by Harvard economist Jeffrey Miron), it has prevented industrial-scale challenges to Mendocino County’s growers, who currently number 20,000 and provide 85 percent of the nation’s cannabis. Indeed, the low visibility of tiny, isolated cultivation sites is an asset in an illegal industry. With the advent of legal commercial cannabis production, though, the inherent advantages that smallness bestows under prohibition will quickly evaporate, and if growers cannot pool their resources and cooperate, consolidation could be the order of the day.
The disorganized nature of the industry poses liabilities to craft farmers that could prove fatal in the face of corporate competition, Steinmetz said. For one, the supply side of the market does not respond smoothly to demand, creating missed business opportunities. Flow Kana, which markets a well regarded brand of sustainably grown, “boutique” cannabis strains to dispensaries throughout California, has often failed to satisfy an order because of the difficulty of communicating with suppliers.
“I get a call by a dispensary owner, and he’ll be like, ‘Hey, we want 20 pounds of O.G. or 20 pounds of sour diesel,’” Steinmetz said. “And by the time I talk to the farmers and get ahold of them via phone or via email, you know, it takes me a couple of days because they don’t have those proper connections on their farm, and the deal is off the table.”
Being disconnected and independent also means that growers must spread their limited resources over all steps in the supply chain. Each cannabis farmer must perform the same trimming, drying, and curing procedures separately from other growers doing the same work, limiting the attention they can devote to cultivation. And even in the growing phase, cultivators must spread themselves thin since, not having the market expertise to anticipate demand for particular strains, they have to plant up to a hundred different varieties of cannabis to hedge their bets.
With his own staff handling marketing and distribution, Steinmetz can encourage growers to focus only on cultivating a handful of strains suited to their expertise and region. The division of labor has always been essential to industry, and the marijuana business will be no exception.
“A robust industry is a specialized industry,” Steinmetz said.
Members of Arcanna, a cooperative association of growers based in the hills just west of the future processing facility, have eagerly embraced the opportunity to offload processing and distribution on a third-party service, said Cyril Guthridge, a founding member.
“In the old days, you were the boss of all those things,” Guthridge said. “And all we have to do now is just grow and take it to the beast at the bottom of the hill and let that feed the system.”
“They love growing, and some people love curing because that’s an art in itself,” Guthridge added. “Everything besides that, they hate, and that’s where this system comes into play.”
As its name suggests, the Flow Cannabis Institute will serve an educational function as well as an industrial one. The facility’s processing and storage capacity will not be enough to handle all the cannabis that will come from the Emerald Triangle, let alone California, so Steinmetz envisions this industrial campus to serve as a sort of prototype for similar facilities around the world. Steinmetz expects to host business leaders, politicians, and anybody interested in how to organize strong cannabis industries on the basis of sustainable, small-scale production. Rapper Sean Paul has already expressed interest in learning how to organize the small farmers in his native Jamaica, where anti-marijuana laws have only recently begun to be relaxed.
The Flow Cannabis Institute will be located on the 80-acre property in Redwood Valley where the Fetzer family lived and built its famous brand. The former winery offers both practical and aesthetic assets to Flow Kana’s endeavor, which will pair industrial production with on-site consumption in a picturesque resort setting. The rugged old Big Dog Saloon, tucked away behind the Fetzer family’s elegant white house, will be converted to the cannabis version of a tasting room, with wood-fired ovens producing pizza to go with customers’ weed. In a quaint old cellar straddling a creek, the institute will host weddings and other events, and visitors will get massages with cannabis-infused salves.
The trajectory of Steinmetz’s life seems, in retrospect, to have been aimed squarely at his current role as an industrial engineer for cannabis production. The exuberant, gregarious entrepreneur was born in Caracas, Venezuela, and graduated from Carnegie Mellon University in Pittsburgh in 2005 with a double major in mechanical engineering and economics. After working as an engineer at NASA’s Jet Propulsion Lab in California, he worked as an investment banker for Merrill Lynch, honing his business and legal expertise. He eventually brought his knowledge of economics and logistics back to Venezuela, where for six years he built a food-distribution company, building brands, delivering farmers’ products to market, and creating a vertically integrated factory in Colombia.
Raised by a mother who treated her chronic illness with cannabis, Steinmetz never associated the drug with any negative stigma, always seeing it as “Mom’s medicine,” he said. He has always wanted to see marijuana culture evolve in a professional manner and move away from its countercultural trappings, which he sees as holding it back from mainstream acceptance.
Steinmetz moved to Mendocino County in 2013 and spent his first year building a professional network within the cannabis industry. He founded Flow Kana in 2015, partnering with small “artisanal” farms in Northern California to help them scale up production and secure recognition throughout the California market for their unique products. All the while, he has been a tireless evangelist for industrial organization, having slept in about 150 growers’ homes by his count as he has worked to persuade fiercely independent and often skeptical growers that the future of their business lies in cooperation.
With his expertise in legal and accounting structures, Steinmetz over the past year has assisted roughly 90 farmers in or around Mendocino County in forming three growers’ cooperatives, which he anticipates will supply the Flow Cannabis Institute with a steady supply of product. Steinmetz holds quarterly strategy meetings with the co-op members, but he does not own or manage the self-guided organizations. Despite their independence, though, the fates of the cooperatives and Flow Kana are intertwined.
“We’re all linked by the hip, all of us,” Steinmetz said. “The success of Flow Kana depends completely on the success of each co-op and completely on the success of each farmer.”