Flow Kana, the San Francisco online cannabis delivery service, is looking to raise between $3 million and $5 million to scale and develop the site’s technology.
The platform, which matches medical cannabis users with local farmers, cutting out dispensaries that typically take very high margins, needs to streamline its operations with farmers, said Michael Steinmetz, the founder. This is particularly important ahead of the mooted legalisation of the herb in California in 2016, he added.
“There is a lot of technology to do around the farmer,” said Steinmetz. “Many of them have very little phone signal so it is important for us to get the data and software implemented from the ground up.”
The company has raised $400,000 so far from a small group of angel investors which enabled it to build an app and a team, as well as creating a small logistics centre for pilot operations. But with legalisation in the state looming, Flow Kana wants to ensure it is well-positioned ahead of any policy change.
The company is looking for technology-focused investors from Silicon Valley in particular.
“Investors that are very well involved in technology such as e-commerce, data and apps would be very useful. Someone in the agri world would be very useful to help set up the contracts with farmers and ensure fairness.”
“We also have to have people that are comfortable with cannabis,” he said.
The latter point has raised some concerns among the institutional agri asset management community due to its illegal status with the federal government.
“The problem is [cannabis growers and related companies] can’t use the banking system for deposits because it is controlled by federal government,” said one investment manager. “The Obama Administration has instructed our Justice Department to not pursue cannabis violators, but this could change with a Republican president.”
A change in the federal government’s position could change institutional attitudes but then the sector would be much more over-crowded and the potential for high margins would disappear, he added.
But the current lack of regulation and the potential impact on small farmers in California is the reason to invest now, argued Steinmetz.
”Peter Thiel always says like unregulated markets where you can go in and define regulation and that’s how other businesses like Uber went out,” he said. “Our ultimate goal and vision is to create a framework for protecting small farmers which can use cannabis production as a subsidy to the fruits and vegetables they are supplying local markets.”
“And we want to keep cannabis in the hands of the small, organic farmers,” he added.