Super Puffed

California marijuana startup Flow Kana spent over $175 million trying to become the biggest name in legal cannabis. Instead, it left Mendocino growers holding the bag.

One of the last times I saw Mikey Steinmetz in person, the impossibly enthusiastic entrepreneur Men’s Journal and the Jewish News of Northern California dubbed the “king of weed” was dressed up like a cowboy, strutting around the 300-acre Mendocino County “cannabis complex” owned by his company, the “farm to bowl” startup Flow Kana.

This was April 2018, and legal adult-use cannabis sales had begun in California that January. Flow Kana had been around since 2015, one of a bevy of weed companies launched during the medical-marijuana era with the clear intent to cash in on future legalization. After years of other states (and Canada) creating what advocates and their allies in government promised would be a multibillion-dollar industry, it was finally California’s turn. The green rush was on, and for anyone too late or too poor to make a fortune in Silicon Valley, here was another “once in a lifetime” opportunity to get very rich very quickly. That is, if you had your money in the right place at exactly the right time.

The crowded field of startups already had an “Uber of weed” and an “Amazon of weed.” Consistent with the theme, Flow Kana declared its aspiration to be the “Whole Foods of weed.” What did that mean, exactly? It wasn’t quite clear, but it sounded good enough to be transcribed by reporters from Fast Company, Vice, and others.

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From the beginning, there was an uneasy paradox at Flow Kana’s core. Steinmetz, a native of Venezuela, where he’d run a food-distribution company focusing on stevia before tech lured him to the Bay Area, and his cofounders, including Nicholas Smilgys, who’d managed inventory at a San Francisco dispensary, wanted to become very big while preaching the gospel of small.

Flow Kana proselytized something its founders called the California Way: small-batch cannabis sustainably grown outdoors, rather than mass-produced indoors with energy-intensive lights and filtration that in California suck up as much as 3 percent of the entire power grid. The business plan required marketing outdoor weed, generally considered inferior to the indoor variety, while also handling the logistics necessary to bring a rural product to urban consumers, while—somehow—also scaling up massively, reaping huge profits, and not breaking any laws.

The crowded field of startups already had an “Uber of weed” and an “Amazon of weed.” Flow Kana declared its aspiration to be the “Whole Foods of weed.”

In the company’s early days, its founders staffed tables at San Francisco farmers’ markets, handing out free organic apples and empty mason jars with instructions for how to place orders online that would be fulfilled by bicycle. In interviews, Steinmetz, whose email signature identified him as “Founder & Chief Servant Officer (CSO),” frequently channeled Uber’s Travis Kalanick, referring to Flow Kana as a “technology platform.”

In July 2018, Flow Kana announced a $22 million Series A funding round. Some of that money was from weed-specific investment fund Poseidon Asset Management; some of it was from Roger McNamee, an early Facebook investor and the guitarist from Moonalice. But the biggest chunk, $15 million, came from Gotham Green Partners, a New York City–based cannabis private equity fund whose principals had made a huge pile of money on Canadian weed companies.

In early 2019, Flow Kana announced a $125 million Series B, the largest-ever private raise in weed. (In the pitch decks, the company favorably compared itself to WeWork.) In all, investors pumped more than $175 million into the company, which as of 2020 has been called Flow Cannabis Co., with Flow Kana the first in a family of Flow brands. (Throughout this story, the company will be referred to by its original name, Flow Kana.)

Even in an era of highly valued startups, $175 million is a lot of money for a weed company, particularly one that didn’t grow any weed. Rather than run massive pot plantations, Steinmetz had set to work deepening his company’s relationships with small farmers in Northern California’s unruly Emerald Triangle, where thousands of weed farms dot the isolated redwood-covered hills and verdant valleys in Mendocino, Humboldt, and Trinity Counties, a few hours north of San Francisco. Many of these farms had very recently been run by “outlaws” who were deeply skeptical of outsiders as well as marijuana legalization. (In fact, voters in those three counties had rejected California’s first shot at legalization back in 2010.)

In some of those farmers’ recollections, Steinmetz presented himself as a sort of savior. If Big Weed was coming, Flow Kana was an alternative, despite the fact that it was trying to trade on the farmers’ “authenticity” to build a lifestyle brand. This was another paradox baked into the California Way: it was designed to attract values-based consumers with a taste for luxury, a contradiction not unlike selling solar-powered private jets.

Flow Kana sought to bottle this incongruity and did so quite literally, packaging its product in glass jars that communicated “artisanal” while shipping at scale.

By the spring of 2018, the plan seemed to be working. Jars of Flow Kana–branded cannabis, marketed with the names and rugged faces of hardy Mendocino farmers, were on shelves in dispensaries across the state. The company had met the first Silicon Valley test: year-over-year revenue growth. That year and the next, Flow Kana was the top-selling “flower” (loose, smokable cannabis) brand in California.

Flow Kana was going to become “the world’s largest cannabis supply chain,” selling weed across the country and, eventually, internationally, just like Napa Valley wine.

Thus Steinmetz’s swaggering cowboy getup—a chamois leather vest over a red plaid shirt, two empty holsters flapping over his hips—the perfect (and perfectly silly) outlaw look for Flow Kana’s “coming out” party.

Invitees—cannabis-industry insiders and a herd of reporters almost exclusively from the tech press—rode up from the Bay Area to Redwood Valley on a complimentary motor coach, Tombstone playing on the tiny TV screens. On arrival, guests were given a tour of the grounds, the Fetzer wine dynasty’s former headquarters, which Flow Kana had spent $3.5 million to purchase and untold millions more to renovate, calling it the Flow Cannabis Institute. Steinmetz would later compare it to Willy Wonka’s candy operation during a 60 Minutes appearance.

In between visits to massive warehouses where cannabis-oil-extraction equipment and packaging machines had replaced wine barrels, we were treated to an unending supply of free beer, wine, barbecue, and (of course) weed. The old Fetzer tasting room, the Big Dog Saloon, had been repurposed into a vision of what the Old West might have been like if weed had been gold and investors had stood in for prospectors.

There was a brief video presentation, with drone footage of the grounds set to a soaring soundtrack, a feel-good vision of a sustainable future for California that Flow Kana sold just as hard as weed. According to decks and presentations I’ve seen since, California was just the beginning: as soon as laws allowed, Flow Kana was going to become “the world’s largest cannabis supply chain,” selling weed across the country and, eventually, internationally, just like Napa Valley wine.

Craft weed grown by Emerald Triangle weirdos was about to go global.

Based equally on hype and hope, this was an audacious bet, but in the mid-to-late 2010s, framing cannabis as the next Northern California gold mine made a certain kind of sense. Cannabis, California’s most lucrative and notorious cash crop, was finally legal. Weed was on its way to becoming a legitimate commodity, a packaged good sold coast-to-coast. And looping in the heirloom farmers who’d made plenty of money but risked serious jail time during the drug-war years checked another box. It just felt right.

It also looked right on a business plan. In Canada, a country with fewer people than all of California and where national marijuana legalization took effect in 2018, publicly traded weed companies were becoming unicorns, with early-enough investors rewarded with 25x returns. The investors who laid down over $175 million on Flow Kana hoped they’d found a U.S. company ready to earn even more.

If that all sounds overly ambitious in our more sober era of high interest rates and expensive capital, Twitter-fueled bank runs, and mass layoffs, it is and it was. But caution did not pay. Steinmetz, like so many other founders in the 2010s, only thought big—and bigger. “We’re going to fill up that warehouse with a million pounds of cannabis, dried, cured, and trimmed,” he boasted in a 2020 profile.

The Flow Cannabis Institute would go on to employ 200 people, becoming the second-largest workforce in Mendocino County, after the hospital system. Steinmetz and his family moved in, occupying the white clapboard–sided farmhouse where the Fetzer family once laid their heads.

The next time I saw Steinmetz was almost four years after the cowboy party, on a freezing January morning in New York City. By then, early 2022, the outlook was very different. Flow Kana’s nascent sun-grown cannabis empire was under duress and at risk of breaking apart. The king of weed was losing his crown.

The over $175 million Flow Kana had raised was all gone. It seemed the company had never quite figured out how to operate, let alone earn a profit.

As I would find out from reading company emails and investor updates and talking to former employees, farmer partners, and management over the next year, the over $175 million Flow Kana had raised was all gone. It seemed the company had never quite figured out how to operate, let alone earn a profit.

In 2021, the company burned through its last $25 million, on only $11 million in sales—well under an already modest $14 million prediction that investor updates and pitch decks had spelled out.

At least one misstep wasn’t entirely Flow Kana’s fault. The company had run headfirst into the brick wall of federal marijuana prohibition: it’s hard to become the world’s largest cannabis supply chain when you can’t legally ship across state lines, and any bull market that assumed national marijuana legalization would follow California’s within five years was bound to be a bubble primed to burst. Then there was COVID-19, which Steinmetz claims halted all marketing: no splashy events, no in-dispensary demos.

But even before COVID, legalization’s overtaxation, burdensome regulations, and competition from a rampant illicit market meant the company simply couldn’t make money, especially in California, where weed taxes can approach 40 percent, an immense obstacle that compelled Steinmetz to make himself a public face of a growing tax revolt.

Oversupply was also a major problem. There was simply too much product grown up and down the state. There was so much weed that wholesale prices crashed. Pounds of cannabis that small farmers sold for $2,000 during the pre-legalization medical-cannabis era went for $200 or less. That meant that it was smarter and cheaper for some of Steinmetz’s onetime farmer partners to compost their crops or let them rot in the hoop house rather than harvest them and pay the state’s $10-per-ounce cultivation tax for cannabis (since repealed) they might never sell.

Hubris also played a role, according to many ex-employees and ex–farmer partners. Company leadership behaved as if they simply didn’t believe that growing and selling weed was all that hard. When these assumptions—and a business model imported from commodities like coffee or orange juice—did not pan out, there was nowhere to pivot.

Every cannabis company in California struggles with these issues, but Flow Kana’s spending spree was absolutely remarkable—and, as soon as cannabis entered a bear market, in what turned out to be a prelude to the troubles currently plaguing tech, utterly unsustainable.

The Flow Cannabis Institute was just one acquisition during a statewide land grab: the company shelled out north of $50 million on “hard assets,” including a fleet of trucks and vans, several of which were in “near-new condition,” as well as a $2.9 million “ranch house” the company used for retreats, a regenerative-farming educational complex (complete with dispensary) in Hopland called the Solar Living Center, and warehouses and distribution hubs in Laytonville, Sacramento, Oakland, and Los Angeles.

Other costs mounted, including customized Carhartt jackets for the staff. The company flew Snoop Dogg to the Flow Cannabis Institute in September 2019 for the inaugural Flow Talk, the company’s answer to a TED Talk, at some undisclosed great expense.

Finally, in 2021, the year the company reported burning its final $25 million, it invested in something it had said it never would: its own grow—12 acres in Lake County. As soon as Steinmetz broke the news, some of his farmers jumped ship.

This foray into farming ended in catastrophe, according to former employees. Heavy rains and a late harvest coated tens of thousands of pounds of pot in mold. According to Slack messages and emails I read, employees were falling sick from mold but stayed on the job. A mutiny was brewing. “I have never been through anything like this before,” one employee wrote. “My fear is we have a disaster on our hands and a very real threat to the business as a result,” Kevin Haslebacher, the interim CEO, wrote in an email to employees.

He was not far off. After a few rounds of layoffs, the last full-time employees were cut loose in April 2022.

Steinmetz wasn’t done with cannabis, he insisted. “I want to do Flow Kana 2.0.”

But the real crisis, I was informed, was that Flow Kana’s investors had seized control of the company from its founder. It almost sounded as if the enterprise was intentionally being driven into the ground so that the board could strip it for parts—the real estate sold off, the expensive equipment at the ranch liquidated, even Steinmetz’s prized brand names auctioned off—leaving the founder with nothing.

Steinmetz still had a couple of tricks up his sleeve. For one, he could use a friendly story from a journalist like me to deliver him “justice.” If positive press had gotten Steinmetz this far, surely it could help him again now. Though what that story would say was never quite clear.

And despite all this, Steinmetz wasn’t done with cannabis, he insisted. “I want to do Flow Kana 2.0,” he told me, sounding like many deposed founders who dream of one more moon shot.

I reminded him that his imagined rehabilitation would be difficult in Mendocino, where the farmers felt ripped off and where to wear Flow Kana gear in public is to welcome opprobrium. In the Emerald Triangle, Flow Kana’s reputation is about as golden as Monsanto’s.

“I want to give answers to the farmers that have questions,” he said. If those answers weren’t enough, he could create his new vision for the company away from California, possibly in Thailand. He just needed a chance. And better, different investors.

“I had the illusion of control,” he admitted to me. “I was very naïve.”

Again and again, Steinmetz returned to the idea that the vision—the California Way—was solid but that the company was now in the hands of investors who had given up prematurely and wanted to dismantle it before Flow Kana could realize it.

Gotham Green representatives refused to speak to me for this article. So did Roger McNamee. But Kevin Albert, a board member and private equity veteran, told me that there was a deeper flaw: the California Way wasn’t a hit after all. Turns out, most cannabis consumers didn’t care how their weed was grown. Most cannabis buyers just wanted a product that was powerful and inexpensive.

As for Flow Kana, the company is now gone, at least as a recognizable going concern. Jars of weed bearing the Flow Kana logo have been absent from California dispensary shelves going on a year. As of this writing, the company exists mostly on paper, a shell that’s leasing the Flow Cannabis Institute to another cannabis company and has listed most of the rest of its properties for sale.

But something is stirring. According to the most recent quarterly investor update, Steinmetz has officially exited the company. About a week beforehand, on Earth Day 2023, my phone started buzzing with message after message from flabbergasted outdoor farmers: Flow Kana’s social media profiles, quiet for years, were active and posting again. Steinmetz and his wife, Flavia, had both changed their Facebook profile pictures to the Flow Kana logo.

“Going back to our roots,” a post on the @flow_kana Instagram account read. “Stronger. Humbler. Wiser.”

Was the company back? Maybe, if for now only online.

It was also around this time that Steinmetz had a change of heart. Initially deeply interested in telling me the full story, as he did during a series of regular on- and off-the-record Signal and phone interviews from early 2022 until this spring, Steinmetz had apparently recaptured his beloved brand name but at the cost of signing a nondisclosure agreement. Our long conversations were now extremely inconvenient.

After unsuccessfully trying to convince me to let him walk back much of what he’d been repeatedly telling me, Steinmetz ended his participation in this article. Friendly press was one thing; a reporter trying to dig deeper seemed to make Steinmetz uncomfortable.

Plenty had thoughts to fill the vacuum. “You were doing good being quiet!” posted legacy farmer and former Flow partner Johnny Casali under his @huckleberryhillfarms account in response to the “back to our roots” post. “People haven’t forgotten yet!”

At the end, many in Mendocino had cause to dislike Flow Kana. On its way down, the company had left literal destruction in its wake. In July 2021, a wildfire sparked by an employee running a lawn mower over bone-dry grass in violation of every fire-safety protocol burned down three families’ homes in Redwood Valley. That preceded the company’s moldy Lake County crop.

But Flow Kana’s original sin may have been ripping off the small farmers. The company had struck deal after deal with the Emerald Triangle growers that it simply could not keep. Falling wholesale prices meant Flow Kana would pay late or pay less than what was promised. If farmers didn’t like it, they could walk—there was always someone else to partner with. Not every farmer I talked to said that Flow Kana had stiffed them, but the company had clearly done something to irreparably piss off its onetime partners.

“You are not the small farm savior. Your company is a dystopian nightmare, and if you can’t see that, there is something very wrong with you,” one farmer emailed Steinmetz in late 2021. “You’re either highly delusional or just a terrible person.”

Speaking to me last fall, Casali, one of the last farmers to stand by Flow Kana, was still heated. “They got the trust of the Emerald Triangle farmers,” he said. “And then, excuse my language, they really shit all over us.”

Nicholas Smilgys, Steinmetz’s cofounder and head of operations, exited in 2016, well before the cowboy party. Steinmetz had fired him for allegedly misappropriating company resources; Smilgys told me that was the cover for a power move, cutting him out, since he’d supported the farmers’ efforts to form a co-op.

“He never had evil intent,” said Swami Chaitanya, the founder and avatar of Swami Select.

Smilgys said he’d known there was something inherently wrong with Flow Kana’s operation. “I would always be like, ‘We sell weed—why don’t we make money?’” he told me. At one point, Smilgys found that the company was losing $200 for every pound of pot it sold. Anyone raising concerns was brushed off.

“The attitude was like, ‘We don’t need to make money. We can always raise more,’” Smilgys said. “That Silicon Valley attitude brought to a business that is not Silicon Valley.” (Steinmetz disputed the $200 figure but admitted that the company had had significant overhead. And he did not claim that Flow Kana had been profitable.)

The California Way, in other words, was pure vibes: a vision always just over the horizon that never came into focus.

“That was the reason behind the Flow Cannabis Institute and all this extra shit you don’t need,” Smilgys continued. “There was no need for that other than to have a thing to show people, ‘Look, we’re doing this and it’s all amazing. Don’t you want to be a part of it?’”

“It was all just a fucking shell game,” Smilgys said.

Others were more circumspect, framing Steinmetz as a wayward dreamer, not a charlatan.

“He never had evil intent,” said Swami Chaitanya, the founder and avatar of Swami Select. A Summer of Love hippie turned holy man, Chaitanya was one of the first farmers Flow Kana got on board. On their farm, Chaitanya and his business and life partner, Nikki Lastreto, and their crew grow weed planted in the “sacred” interlocking triangles of the Sri Yantra. Pure California Way stuff, but since Flow Kana also tried to put Chaitanya’s weed in jars bearing the Flow Kana name rather than brand-savvy Chaitanya’s, he was also one of the first to leave.

Chaitanya, at least, has no hard feelings.

“He was always trying to help the small farmer,” Chaitanya said during a phone interview. “But it kind of got out of control after the $175 million—”

“There are going to be a lot of farmers who disagree with Swami completely,” Lastreto cut in to say.

Even the farmers who loathe Steinmetz agree with him on one thing: The California Way was at the mercy of investors whose vision, as one would expect, was more driven by the bottom line. When those investors didn’t see returns, they quickly moved on to greener pastures.

“Overall, I think Mikey got eaten up by bigger sharks,” one farmer told me. “But he was willing to sacrifice any part of the vision to stay the course of being the biggest. And that was the Achilles’ heel.”•