Today, Michael Steinmetz, CEO of Flow Kana, announced the distribution business which has formed partnerships with many Emerald Triangle farmers specializing in sungrown cannabis, would be cutting up to 20% of its workforce.
However, when reached for comment this afternoon, he assured us that no workers employed at either the Whitethorn or Laytonville facilities would be laid off.
“Sourcing and packaging and selling product hasn’t been affected at all,” he told us. But, he said, “All of the growth initiatives related to expansion in 2020 have been put on pause until the market catches up.”
Other cannabis companies have recently cut back on their workforce.
In a press release issued earlier today, Flow Kana blamed a “combination of overtaxation, overly-complicated regulations, and lack or dispensaries due to local moratoriums” for cannabis businesses having to lay off employees.
But Steinmetz pointed out that the amount of cannabis consumed since legalization hasn’t gone down. Instead, he said, there are several problems inhibiting the growth of the legal market.
Steinmetz said that the “broken tax structure” needed to be addressed quickly. He argued that the four taxes that are layered on cannabis as it moves from cultivators to retailers make legal sales costly for the consumer pushing them towards the illicit market.
“We need to eliminate these multiple layers of taxes,” he urged. “[The] cultivation tax should be reduced to zero.” Or, at the very most, he argued, “it should be a percentage not a fixed dollar amount.”
Cannabis cultivators are currently paying taxes of roughly $150 per pound whether the pound is sold at $200 or $2000. “That makes no sense,” he insisted.
“We’re not saying don’t tax this industry,” he explained. He said he just believed in consolidating taxes and reducing them. “The current tax structure is driving people to the illicit market.”
He suggested a tiered system might work and pointed to the beer business. “With craft beer, a small producer pays a smaller tax.”
The layers of bureaucracy also are contributing to the struggles of the legal cannabis market, he explained. “One agency tells us one thing and another tells us another,” he complained. He urged consolidation of the differing departments. The press release issued earlier today stated, “We ask that the Bureau of Cannabis Control be elevated to a Department-level agency reporting directly to the Governor.”
A third urgent issue, according to Steinmetz, is that legal businesses are struggling to compete in prices with the illicit retail stores. Those are “not taxed and regulated,”he explained. “There is no quality control. [They have] non-compliant merchandise on their shelves.” That cannabis is often contaminated with chemicals and can be harmful to consumers, he noted.
In spite of that, he doesn’t push for law enforcement to crack down on the illicit stores. Rather, he advocates finding incentives to bring the black market retailers into the legal market. “Doing enforcement on a broken system solves nothing,” he argued. “We first have to fix the system.”
He urged that illicit retailers not have to “get perfect on day one,” but rather have time to comply with regulations.
In addition, he suggested one of the ways to fix the system is to expand the market into areas that currently have moratoriums on cannabis sales. “Let’s find ways to create incentives [for the areas to open to the cannabis industry],” he said pointing out that the majority of cannabis sales in California are still made on the illegal market.
He suggested that if municipalities and counties don’t allow cannabis sales and cultivation, then they should not reap the benefits of taxes on the product. “It is hypocritical and it is not fair,” he said for those areas to participate in the proceeds of cannabis taxes when they don’t allow their citizens to purchase or farm marijuana. “If you don’t [participate], then you shouldn’t get any of the benefits.”
At the end of the interview, he reiterated, “There is nothing to worry about with Flow Kana.” He said that to keep “our eco system healthy, we had to make a super tough decision.”
He urged farmers and others in the legal cannabis business to not give up as the government grapples with creating the right mix of incentives and laws. “I believe we need to be patient, resilient, and work hard,” he said. “This community has been resilient time and time again…This is not a time to give up. This is a time to double down and work harder.”