SQLalchemy AttributeError: 'str' object has no attribute '_sa_instance_state'

I think the problem is in how you are defining the related company schema:

JawboneUP3 = item(itemID = "1", name = "Jawbone UP3", description = "The latest UP!", 
                  category = "tracker", price = "$174.99", company = "Jawbone")
                                                           # HERE^

The item constructor expects a company instance but you are passing a string value. Fix it:

JawboneUP3 = item(itemID="1", 
                  name="Jawbone UP3", 
                  description="The latest UP!", 
                  category="tracker", 
                  price="$174.99", 
                  company=company(name="Jawbone"))

First of all, when defining a class in Python, it is of good practice to to start the names with an uppercase letter like this:

class Company(Base):
    __tablename__ = 'company'
    compID = Column(Integer, primary_key = True)
    name = Column(String(80), nullable = False)

class Item(Base):
    __tablename__ = 'items'
    itemID = Column(Integer, primary_key = True)
    name = Column(String(80), nullable = False)
    category = Column(String(250))
    description = Column(String(250))
    price = Column(String(8))
    compID = Column(Integer, ForeignKey('company.compID'))
    company = relationship(company)

That being said, it is not why your code throws an error. :)

The reason

The Item constructor expects an instance of the object Company to by passed as a value of the variable company

Solution 1: The Jawbone company does not exist in your database

Here the answer of @alecxe is valid.

You should replace your code with:

JawboneUP3 = Item(itemID="1", 
                  name="Jawbone UP3", 
                  description="The latest UP!", 
                  category="tracker", 
                  price="$174.99", 
                  company=company(name="Jawbone"))

Adding this object to the session and comiting the changes will actually make two entries to your database:

• The item entry, with name "Jawbone UP3"
• A row in the company database, a company with name "Jawbone"

Solution 2: The Jawbone company exists in your database

Here you should fetch the company Jawbone from your table "company" and pass it as an argument to the Item constructor, like this:

jawbone = session.query(Company).filter_by(name="Jawbone").first()

JawboneUP3 = Item(itemID="1", 
                  name="Jawbone UP3", 
                  description="The latest UP!", 
                  category="tracker", 
                  price="$174.99", 
                  company=jawbone)

For the session part check this