A buzzy cannabis startup that partners with local farmers in the Emerald Triangle is seeking to raise fresh cash from investors

• Flow Kana is one of the hottest startups in cannabis, according to investors we surveyed.
• Flow Kana partners with licensed growers in Northern California to buy their cannabis. Many other cannabis firms set up their own cultivation facilities.
• Flow Kana's business model allows the company to expand quickly, CEO Mikey Steinmetz told Business Insider, making it attractive to investors.
• Steinmetz said if most other vertically integrated cannabis companies wanted to "double their revenues or triple their revenues, they'd have to double their cultivation, triple their cultivation." Flow Kana, in contrast, would just have to sign on more farms.
• The company has raised $175 million, including $125 million through a Series B in December 2018. Steinmetz told Business Insider that he plans to raise another funding round within the next two quarters.
• Click here for more BI Prime stories.

While most cannabis companies are trying to compete with the cannabis growers in the Emerald triangle, a region in Northern California that by some estimates produces 60% of all the cannabis in the US, one company is teaming up with them instead.

Flow Kana has raised $175 million so far to position itself as a sort of centralized processing facility for cannabis farms in the region. Independent farmers grow cannabis, then sell it to Flow Kana, which takes care of the rest of the processing.

Flow Kana, which is based Northern California, has used its unique strategy to become one of the hottest starutps in cannabis, according to investors surveyed by Business Insider.

Now, CEO Mikey Steinmetz told Business Insider that the company is gearing up to raise more funds this year.

He said he wants to "de-risk" the company's future by bringing in extra capital, especially given the difficult times some rival cannabis firms have encountered.

Steinmetz said it's very "top of mind" for him to get a raise done "because if there are uncertain and unknown times again, it's better to be prepared."

Flow Kana's business model

The easiest way to explain his business, Steinmetz told Business Insider, is to understand how agricultural systems around the world work. For example, in Venezuela, where Steinmetz was raised, small coffee farmers grow beans year-round and then take them to a centralized processing facility to get the beans dried, roasted, and packaged on scale for distribution.

In the same way, Flow Kana works with local farmers in the Emerald Triangle who sell their cannabis plants, still raw on the stem and untrimmed, to Flow Kana for trimming, processing, and packaging.

"Basically, we take a raw good and turn it into a finished good and take it to the dispensary shelf," Steinmetz said.

Flow Kana's business model - which relies on third parties to grow and produce the plant - also allows the company to grow quickly, Steinmetz told Business Insider, making it attractive to investors.

That's a departure from many other cannabis firms, which often handle everything from growing cannabis, to processing it, to selling the finished product.

If most other vertically integrated cannabis companies wanted to "double their revenues or triple their revenues, they'd have to double their cultivation, triple their cultivation," Steinmetz said, while Flow Kana would just have to purchase more cannabis from its partners or build more relationships.

Michael Gruber of Salveo Capital, an investor in Flow Kana, told Business Insider in January that he likes the company because it gets cannabis to Californian customers in an efficient manner and "operates from an exciting business model that leverages the power and expertise of farmers" without the need to cultivate any cannabis directly.

How the idea started

Steinmetz founded the company in 2014 after touring the Emerald Triangle with his wife Flavia Cassani, who handles public relations for the company. The Humboldt Institute for Interdisciplinary Marijuana Research (HIIMR) says that "the Triangle is likely the largest single producer of cannabis in the nation."

Though some farmers in the Emerald Triangle are pivoting to the legal market after years of working in the illicit space, most are widely thought to have stayed on the sidelines, avoiding the complicated process to obtain a cultivation license in the state.

Fred Krissman, who studies cannabis cultivation at HIIMR, estimated in 2016 that there were tens of thousands of "mom & pop" producers, and thousands of relatively small-scale farmers in the area cultivating cannabis. Yet, in October 2019, the Humboldt County Growers Alliance (HCGA) said that there were only 1,627 total licenses in the three counties making up the region.

As of the end of 2019, Flow Kana worked with about 200 farmers, and about 50 of them have agreed to only sell their cannabis to Flow Kana, Steinmetz said. Flow Kana doesn't run its own retail stores, but it sells cannabis goods to more than 474 clients, he said.

In the beginning, it was difficult to get local farmers on board with the idea.

Getting farmers on board

"You have to understand the culture and state of mind of farmers," Steinmetz said. "They're the sons or grandsons of the back to the land movement and they didn't like corporate america. So naturally, they're very skeptical of someone like me trying to bridge the gap, trying to bring corporate Wall Street to meet their culture."

But Steinmetz said he believes the success of the industry and of the small farmers depended on the collision of the two worlds.

"The truth of it is that these small farmers in this area, once the regulations came in, they were no longer farmers, they had to transition into business owners," Steinmetz said. "They had to file taxes, get permits, get employees on payroll, their whole life had changed from being on the land to running documents."

Tina Gordon, founder of Moon Made Farms, one of Flow Kana's partners in the region, met Steinmetz and Cassani in 2016.

Gordon said she ultimately decided to partner with the company because of their shared understanding of the importance of cannabis grown outdoors, rather than in a greenhouse.

"It's an important time for people to realize where cannabis is coming from, how it's grown, who it's grown by and this is all something that Flow Kana called out," Gordon said.

Like many other cannabis companies, Flow Kana faced a round of layoffs last year, cutting 20% of its staff. Steinmetz said at the time that the "realities and size of the market" has proven to be much smaller than initially anticipated and, in a statement provided to the Sacramento Bee, urged the state to help remedy the situation.

Until the end of 2019 Flow Kana only distributed cannabis flower to retailers. But in January of this year, the company received a license to manufacture extracts, oil-based vapes, topicals, and tinctures on their 200,000-square-foot facility in Mendocino County. Steinmetz said Flow Kana's current facilities allow the company to potentially produce around 10 times the volume it's currently doing.