One month out, the Phylos Bioscience story continues to unfold like the slow drip of a Chinese water torture. With betrayal at its core—including a level of deception so deep that two former employees (that we know of) have publicly admitted to throwing up upon viewing the now infamous Dr. Mowgli Holmes investor video—this head-shaking story also has of necessity provided a renewed (and refreshing) sense of urgency to questions surrounding the future of sequencing labs, who to trust for testing work, how to best protect individual and collective intellectual property (patent or no patent?), and whether, in an environment of mistrust, the mountain of genetic work still to be done for the benefit of cannabis breeders can get done.
Talking with members of the science and breeder community over the past month has clarified the extent to which people’s opinions on the scandal are influenced by their closeness to it, personally and professionally, as well as their place in the industry. As an accepted narrative about what happened takes shape, one person after another is coming forward to explain or reveal something about their experiences with Phylos.
This week, it was an editorial in High Times by former Phylos employee Dick Fitts (real name, apparently) whose job included reassuring people who had submitted samples to the Phylos Galaxy “…time and again, hundreds of times daily: ‘We are not out to steal your work. We are here to help you protect it, to prove prior art. We’re a different type of cannabis company. We fucking hate Monsanto. We fucking hate Monsanto. We fucking hate…’ and on and on.”
Last week, it was East Fork Cultivars, a craft breeder and cultivator in Takilma, Oregon that was working with Phylos on a “two-part, limited-scope project in February to 1.) Replicate Type 3 (CBD-dominant) seeds from 10 populations and 2.) Trial those seeds in a 1-acre test plot under our ODA hemp license.” May 8, the company posted to Facebook: “After consulting with dozens of breeders, growers, community members, friends, and the team at Phylos, we’ve decided to discontinue our partnership, effective immediately.”
The stakes, they said, are binary. “Moving forward, Phylos has a big decision to make,” read the statement. “They can make good on their promise to be a good ag science company, providing essential services to small breeders and farmers, or they can follow the lead of traditional big ag, a path that has historically damaged biological diversity and devastated small farm communities.”
The industry’s scientists, who by training and inclination eschew emotion as a mitigating factor in their work, nonetheless find themselves in the painful position of having to separate fact from passion on matters of science even as they too are forced to contend with the serious implications of the Phylos affair, especially if they run a lab.
A rupture of trust of this magnitude, even if it is isolated to one company, also throws a spotlight on any entity, for-profit or non-profit, that, like Phylos, acquires other people’s plant samples for testing, research, or any purpose. One such non-profit, The Open Cannabis Project (OCP), has already fallen victim to the Phylos fallout and, as previously reported, will cease operations at the end of May, with plans to make all data publicly available.
Other for-profit companies, like Steep Hill, a licensed testing lab, and Medicinal Genomics, which operates Kannapedia.net, a “website that houses genetic data from the cannabis cultivars sequenced with our StrainSEEK Strain Identification and Registration Service,” are going concerns that have no choice but to address issues being raised by Phylos’s obliteration of trust.
Michael Backes, for one, expressed the extent of his mistrust immediately after the story broke. “Anybody who’s offered to do genetics testing in the space, with a few exceptions, such as academic groups, I have always felt this aura of deceit,” he said.
Whether the opinion of the co-inventor of the Biotech Institute-assigned cannabis patent carries any weight or not with Steep Hill president Reggie Gaudino and Medicinal Genomics chief science officer and co-founder Kevin McKernan, neither scientist needed any encouragement following Phylos’s original announcement to explain why the processes and reasoning behind how they manage both the samples they take in and the expectations of the people submitting them versus how Phylos did it is night and day, apples and oranges.
Steep Hill Labs
Gaudino brings a singular perspective to the subject of genetic testing maybe because he’s been working the space for so long. “We started in the industry trying to get people to do sequencing, frequently being told, ‘No, you’re just trying to steal our genetics,’” he said just after the Phylos announcement broke. “It was directed at us because we were one of the first, and I kept having to remind people that I can’t use their genetics. ‘I’m in California,’ I’d say. ‘I’m precluded from having another license. I can’t be a breeder or have a nursery.’”
Up until Phylos made their announcement about breeding, Gaudino viewed their activity with a sort of professional detachment. “I’m a geneticist, and I look at things from the point of view of science, and I leave the emotion out of it, and the reality is that within [the Phylos Galaxy] they have a working tool,” he said. “It’s not a very useful working tool, but they’ve made additions to it, like THC and CBD markers, and as they add more tools it will be more useful.
“Is it a universal tool like [Medicinal Genomics’] or mine?” he asked. “No. But what people fail to realize is that the Phylos Galaxy is perfectly correlated and a great resource if you’re inside. It’s only when you step outside that it stops becoming useful. So, people really need to take emotion out of the response and look at it from the pure light of science, which is that they created a database in which everything makes sense. They may not be able to offer much in terms of breeding, but if you understand the different ways to look at DNA, you can glean information.
“The fact is, DNA is a physical thing.,” he continued. “There are physical realities and limitations to recombination, and things that travel together on pieces of DNA that are within certain distances tend to always travel together. So, if you know this about genetics and breeding, it helps, and [Phylos has] that ability.”
Recruited late last year to join the OCP board, Gaudino found himself caught up in the Phylos affair almost by default. “I’m so entwined in this it’s unbelievable,” he said, explaining that he joined OCP at the behest of Mowgli. “He came to me and said, ‘I need you to join OCP.’ My perspective at the time was that we have patents out there that are not doing it the right way, but that we need new patents and there’s a right way to go about doing it.
“Mowgli was of the mind that patents are bad, but now he’s out there with IP, patenting stuff,” he added. “That’s what competition seems to be all about, but he did it in a way that was dishonest with his clientele and with the open source nature of it, which is what OCP was about and why I joined, so that we could publish and share.”
Gaudino said Steep Hill has had an uptick in business since the Phylos announcement, which he attributes to groundwork the company established long ago. “It’s because I’ve spent all this time building services I can show to people,” he said. “You have to establish integrity in the relationship and not be squirrely when [the client] wants to know what you’re doing with their data. When you come in for chemical testing or genetic testing, I tell you upfront that I’m going to use [the data] for aggregate analysis. If your sample is found to be special in any way, I tell you that you have something special, and you’re off to the races. But I also tell you up front that because of what I do, I can tell you why you’re special and then I can be a better partner. It doesn’t give me the right to claim your thing, because it’s not my thing. I wasn’t the breeder of the strain. I’m the one who tells the breeder that his or her strain is special.”
I remind Gaudino that Mowgli also made similar promises about not patenting or stealing plants. “Yes,” he replied, “but there’s a bright line and that line is that I only turn around and sell tests that other people can use, and I don’t start a breeding company. The difference is ethical. The business model does matter. You’ve stepped over that bright line when you create a situation where you have a competitive advantage because you hold all the cards.”
In the end, added Gaudino, “Phylos didn’t give their clients the ability to get access to all the DNA but told them that they were going to have access to all these tools. So, what do they do? They dumped the entire data set into NCBI, so now what is the normal guy going to do? It was great for me; we downloaded it and used it, but that’s because we have equipment and servers and other stuff. What is the regular cultivator with no background in biology going to do with that data? How does that help him?”
Like Steep Hill, Kevin McKernan’s Medicinal Genomics offers testing and other services while using aggregated data from plant submissions to build proprietary tools designed to aid breeders in the cannabis industry. Unlike Steep Hill, it is not encumbered by any licensing restrictions, but can engage in any legal profit-making activity it chooses to pursue, including breeding.
McKernan, who, as previously reported, overcame an initial reluctance to call out Phylos after he realized that the destruction of trust caused by Phylos would only serve to erode trust in his company if they did not attempt to explain the differences between the two models. Toward that end, McKernan unleashed a torrent of comments across Instagram that continue to this day, and Kyle Boyar posted a company statement to Facebook bullet-pointing what Medicinal Genomics does differently.
1. We like to build tools that help breeders as opposed to compete with them. This is most evident with our YouPCR [You P.olymerase C.hain R.eaction] offering, where we self-funded the discovery of XY, CBD, THC, PM, Russet Mite markers and made them available for breeders to run at their grow where no data harvesting could happen. The fact that we build tools that are an antidote to data harvesting is in stark contrast to companies that had a premeditated plan to harvest their customer’s data under the false promise that they would never become breeders.
2. We built blockchain into Kannapedia as we saw this coming a mile away. If we get shut down or acquired, the hashes of your sequence are still timestamped on a public ledger no one can edit. It is important that the provider does not have editorial or timestamp control over your data in the event they ever change business models and decide to compete with you. The other company is probably editing their private database as we speak.
In a separate interview, McKernan said nothing about the Phylos affair had surprised him. “I’ve been working at genomic companies since 2000, and in every single market this happens,” he said. “Someone comes along with a less-than-cost test and encourages everyone to send in their samples, and then turns around and sells the data. It happens like clockwork. It’s surveillance capitalism.” [Editor: Interestingly, Michael Backes used the same “surveillance capitalism” phrase to make the same point during his interview.]
Like Gaudino, McKernan espouses a hand’s off approach to other people’s data with the same caveats. “The best testament to our actions is what we do, and what we do is we’ve been building antidotes to this sort of harvesting,” he said. “And we specifically built this whole YouPCR product line when we got really frustrated with what Phylos was doing. We saw that they were building a centralized database and realized they were going to screw all these people, and the only solution to that would be to get the PCR devices in every single grow so the DNA never needs to leave [the growers’] hands. That’s what Seth Crawford [from Oregon CBD] did. He used our YouPCR test to figure out a CBG line, and he’s got CBG lines now. All he needed was our YouPCR tool, orange photonics, and his intelligence, and he was able to come up with outrageous weed.
“Our approach to the market is that we don’t want to become a breeder,” he added. “We’re not good at it and we think it’s going to be a very crowded market. Instead, we built picks and shovels for everybody because we frankly think it’s a larger and more scalable market for us than competing in the breeding market, because we’re not breeders. Our expertise and history are in building genomic tools and we’re going to keep doing that, but while I can tell people until I’m blue in the face that I’m not going to compete with them, they’re not going to believe me after what Mowgli did.”
There is, in fact, no reason not to push McKernan on a potential scenario in which Medicinal Genomics itself or an acquirer uses the data it has aggregated over the years to gain a competitive advantage in the marketplace.
“It’s a fair question, and we can’t give anybody a 100 percent promise [that we won’t], because people’s promises right now aren’t worth much,” he said. “But we can ask people to look at our actions. We’ve been building product lines that decentralize, and you wouldn’t do that if you were turning into a breeder. It would be shooting yourself in the foot to make these assays available to all your future competitors.
“If we were to get anything out of [submitted samples], our goal would be to decentralize the use of that information to every single grower in the world,” he continued. “Now, could Monsanto come and buy us? There’s always the risk. I don’t control the board, and I guess someone could throw enough money at it and say you have to do this deal, but we have tried to build safeguards into Kannapedia so that if that type of hostile takeover occurs, there are protections for clients who sent data here. The database does not get soaked up, changed, or removed from their control, and they still have evidence of their timestamps in a blockchain that nobody in the world can edit. I think it’s important to note that we offer protection against nefarious use in the future that we can’t even necessarily predict.”
Indeed, utilizing blockchain could be Medicinal Genomics’s ace-in-the-hole in terms of maintaining trust in an untrusting world. “I think the solution is to decentralize [data] so you don’t have honeypots, and if you do have a honeypot, because the sequencers can’t get to the fields yet, you have tools built in to give customers the keys as opposed to leaving them in our hands,” he said. “If we get eaten by Monsanto for some reason, people still have their hash on a blockchain that can prove the timestamp, and I cannot go back and edit that database. I don’t think people realize that they could be editing the Phylos database right now.”
To patent or not to patent
Ensconced within the Phylos story is the complex issue of patents, a boogeyman often conjured as the nefarious tool of Big Ag and other corporate gadflies seeking market dominance they did not to earn. The IP threat from Big Ag is as real as it gets, of course—Monsanto alone is reported to spend $3 million a day in its IP bid to gain market dominance in newly targeted industries such as cannabis—as is the prospect of patent trolls targeting the industry with overbroad patents designed to sweep in the lowest-hanging fruit. Increasingly, however, the idea is taking root that narrow patents on singular varietals of lasting value may be the best course of action for small breeders and cultivators looking to protect valuable assets.
Not everyone agrees, of course, including Michael Backes, the same man who co-authored a patent portfolio that patent lawyer Dale Hunt characterized as being perfectly positioned for use by patent trolls.
“Look, the truth is that patents are only as good as they are, and the reason I’m not pursuing patents anymore is they are not as valuable as trade secrets,” Backes said, using Coke to make his point. “Coca-Cola didn’t patent the formula; what they did was keep it secret. That’s the way to do it. If you keep your secret, you have longer-lasting potential with the patent…if you can keep a secret.”
Hunt, who was legal advisor to the Open Cannabis Project and had also done some patent work for Phylos before resigning in the wake of the scandal, is emphatically pro-cannabis patent as long as it’s done conservatively in terms of which cultivars to patent.
“Breeders can protect their strains and cultivars from patent trolls with a plant patent or a utility patent that’s strain by strain,” he advised. “But you wouldn’t do that for hundreds of strains. You do it for the ones that are worth protecting, that are going to have commercial value for years. Those that are going to have commercial value for only a season or two are not worth the cost.”
As with the other products he offers the breeder community, Kevin McKernan wants to be a decentralizing force within the industry by balancing out inequities. “We’re here just providing DNA sequencing,” he said. “We don’t want patents to be broad. We can’t control that, of course, but we can help the smaller group of people who don’t have the money to do offensive patenting and help them with defensive approaches. That’s kind of the area that we like to service because we feel more democratizing to the community.”
Steep Hill’s Gaudino not only agrees, he practically bellows the message that the work he is doing is designed to speed up the patenting process for small growers without the resources to outspend Monsanto.
“If people don’t trust us and don’t pay for our services, we can’t help them get ahead of the curve and use the power of genetics to their advantage,” he argued. “The fundamental flaw in their logic is that because of the way the industry has been built—and I think you and I talked about this in the mg article— because you can go out and just get anybody’s clones at the dispensaries, people who can do this and have deep pockets, like Monsanto, which spends a billion dollars a year in research, over $3 million a day, they can go to a bunch of dispensaries around the country, they get lucky and find the one weak link in the industry, a guy who’s got 300 strains, and they’re off to the races. Now they have a bunch of stuff and they have advanced genetic tools, like the ones that we’re building for the industry. But if the industry doesn’t use them, Monsanto and those companies will.
“Unless we use the same tools as Monsanto before they get here, and then file patents on the new and interesting things we develop, we will get cut out,” he added. “This is what I’ve been saying for years. We need to lay the groundwork so that they can’t come and take it.”
For East Fork Cultivars founder Mason Walker, the decision to patent is not so clear. “My continuing perspective is that cannabis has a wide, diverse appeal that’s helping to inform our feelings around genetic patents,” he said. “We have our personal ethics and personal values—our leadership is kind of anti the patenting of plants. Overall, we recognize the value of IP spurring innovation and fully recognize the value of intellectual property. However, in the plant realm, we have fewer good feelings about patents. With cannabis, I think it’s going to develop so rapidly, and yes, like the insight you got from [Dale Hunt], if you’ve got something that you’re sure is going to be really valuable for 10-15 years, maybe pursuing a narrow patent on it makes sense.
“But I also think that breeding work is going to iterate so rapidly and in such small ways that I don’t know how valuable those patents will be,” he added. “A lot of it sits with the USPTO (United States Patent and Trademark Office) and how broadly they issue patents in cannabis. Because it is essentially the most chemically complex plant on the planet, how much are they going to really get down into those chemical components and into observable morphological traits? I don’t know but I have a feeling they’re not going to get into it that deeply.”
For Nathaniel Pennington, CEO of Humboldt Seed Company, patenting his best strains has felt like a wasted effort considering the speed with which he improves on the quality of his flower.
“As a breeder, I improve on my stock every single year, so getting a plant patent on something I’m probably not going to improve on within the next year or so is kind of silly,,” he said. “It’s more like a marketing strategy people use to wow investors by saying they own 30 preliminary patent applications. And, you know, investors right now don’t have the in-depth knowledge about this industry to understand, so it’s so easy to pull the wool over their eyes.”
AP (After Phylos)
“What is coming out of Phylosgate is that we are having this discussion, and alternative organizations are being created,” said Trevor Wittke, aka @sungrownmidz, a farmer, breeder, and the executive director of the Calaveras Cannabis Alliance. “The process sort of started after the last Emerald Cup, when Molecular Farms, which has utility patents, won for the second year in a row, and people were like, ‘Is this really what we’re doing? We’re having companies like Molecular Farms issued utility patents that could essentially bar all of us from breeding and using certain chemotypes, and that’s who we’re going to reward?’
“So, that [situation] really jump-started the conversation about six months ago, and we’re really starting to put our minds together on how we’re going to build more of a community-based breeding and genomics programs that will allow us to compete with big agriculture and bioscience,” he added.
On a more personal level, however, Wittke is keeping his treasure close. “I’m not letting anything out personally,” he said. “I’m not giving anything to anybody. All the sampling and testing I did was several years back. To the extent that I did anything, I stayed away from genetic testing because none of the cannabis labs would give us ownership and control over the data, and so we refused to work with them. Then we talked to labs that do normal ag, and they were like, ‘We don’t want your data; we don’t care about you guys. We don’t want to be a pot breeder. We do samples of tomatoes, of onions, we run them through our thing and we find markers, and then we create breeding programs that are formed by these genomics, and we’re able to do it on a computational scale that vastly exceeds anything you’re going to be able to do using your traditional methods.’ And so yeah, many of us are holding to that, and we’re looking where to go and trying to position ourselves in a way where we can do that.”
When asked what breeders should do if they feel they possess unique genetics, Backes was quick to respond. “They should have them sequenced by somebody who extends the ownership of the exploitation of that data back to the person who provided the genetic material,” he said. “In other words, George Church at Harvard has said very clearly to companies like 23andMe and ancestry.com, that when they test human genomes they are getting data that’s so valuable that they should pay the person for submitting the sample because it’s so valuable to the companies to which they sell the data! And that data should always belong to the person who extends it whether it’s their own genome or a plant to cultivate.”
As far as what fate awaits Phylos Bioscience, it may be too soon to say, but for former and maybe future collaborator Mason Walker of East Fork Cultivars, understanding who the Phylos people are is essential to understanding what might have gone wrong.
“It’s funny how in a situation like this we will project things,” he said. “Phylos is a startup founded by homegrown Oregon kids who are really into science and really into cannabis. They started Phylos as scientists and first-time executives, and, so, yeah, of course… ” He paused. “Cannabis is fascinating from a journalistic perspective. It’s a hundred percent startups, you have all these four-year-old companies with new leaders, and it’s just loaded with the trappings for mistakes, and mistakes are certainly being made.
“I’m hopeful,” added Walker. “I met with Mowgli. He’s a smart guy and he has a good heart, and I think it’s taken him a long time to reflect on what went wrong here. I think he genuinely does want to go a good way, and I know that the dozen or so people I know on a person level and am good friends with at Phylos all have amazing passion and values at their core.”
Farm-to-Table or Lab-to-Table?
When Mowgli Holmes publicly explained what Phylos’s business plans are in the marketplace, whether it was exaggerated fodder for investors or not, the pitch sounded like an embrace of, or capitulation to, what might be called the world’s Lab-to-Table movement, which, loosely translated, describes Big Ag’s large-scale lab-directed monocropping, the antithesis of the Farm-to-Table movement, which in its purest form emphasizes biodiversity and soil regeneration.
In explaining that decision later, Holmes described two distinct markets ostensibly united by their genetics while separated by their economies of scale. Working within one of those systems, he seemed to be saying, was not only not a threat to the other “craft” system but could be a potential benefit considering the increased resources and top-drawer talent now available.
It’s a pretty narrative that allowed Phylos to characterize itself as the last science company working in Big Biogenetics that cares about the little guy, but like the argument you’ll hear from the traditional side of the industry that “we need to work with Big Business, but not too much so we can keep control of our destiny,” one wonders who’s really controlling whom, and whether Big Data, in cahoots with Big Science and Big IP, will at any point in the game be able to keep their greedy mitts off the flower side of the business. Bottom’s up to that happening.
It makes sense, therefore, that a consensus does in fact exist amidst the rubble of intense bickering within the cannabis breeding family that the need to “decentralize,” as Kevin McKernan puts it, is real and paramount, and that, whether individually or collectively, whether via IP or market smarts, the time to shore things up is now, before it’s too late.
“If you look objectively at cannabis, the traits that matter are innumerable,” said Mason Walker of East Fork Cultivars. “But if you look at corn as a commodity crop, there really isn’t a craft corn market, or maybe a very small one. But by and large corn is like 90 percent commodity, all about biomass yield per acre of that specific starch form; about as commodified as you can get. And I just think cannabis is harder to commoditize. Yes, THC will be a commodity market, and CBD will become a commodity market but I think the craft segment of the overall cannabis space is going to be outsized compared to most agricultural crops, more like wine. So, that’s kind of my continuing perspective with cannabis, that it has wide, diverse appeal, and that’s helping to inform our feelings around genetic patents.”
Indeed, opinions on the status quo of cannabis IP vary widely, from Michael Backes, who told Future Cannabis Project recently, “The bottom line is the major patents had already been issued in the space long before Phylos showed up,” to a wider view shared by Walker and others that there is nothing inevitable about the cannabis market or cannabis IP. “When we’re talking about patents versus not patenting versus open source, when we’re discussing licensing deals and that kind of stuff, which is the space [East Fork Cultivars is] starting to spend more time in as we shift toward being more of a genetics company than a production farm, it’s clear to me that it’s going to take a while for this to settle out. It’s still all over the place.”
Walker’s perspective on the business of cannabis is no doubt influenced by the years he spent working as a business reporter before flipping the script to become a family farmer. “I wrote a decent amount about patent trolls in different business sectors,” he said during a call last week. “I wrote about one case with a small winery in rural Oregon getting sued by a big liquor company out of Florida, and software trolls that were targeting Portland software startups. This exists in all industries. It’s certainly not unique to agriculture and won’t be to cannabis. How severe it will be in the States we don’t really know, but the silver lining is that this kind of predatory business model has existed for decades, and there are defenses.”
One would assume Walker’s traditional yet sophisticated approach to cannabis, intellectual property, and the marketplace, including what he called the company’s “obsessively collaborative” culture, is something that would appeal to Steep Hill’s Reggie Gaudino, who has been a rock of consistency over the years in his messaging on the need for the industry to invest in the development of the research he says still “has to get done.”
He explained the scale of the task: “There are over 4,000 named strains,” he said. “Do I believe they are all different? No, but there’s over 4,000. However, we have no real measure of them because people change names all the time, so the only way to really do this is a catalog these things chemically or genetically, and then go, ‘We’ve tested 10,000 different things from around the world and of the 10,000, we have X number that are really genetically distinct.
“Just like it’s only now, after many years of doing the Human Genome Project and having I think 15,000 complete genomes, other than Craig Ventor, that we have captured almost all the genetic variation on the planet,” he added. “I have access to about 60 or 70 [whole genomes]. Phylos only has four or five that they did whole genomes on, and Kevin’s got a handful. So, we’ve only got 100, maybe 120, whole genomes. We’ve got 100-fold to go before we can start to look at things the way we look at the human genetic map.”
In the meantime, he’s all for using whatever tools are available, but using them wisely. Appellation, for instance, is something he supports but only if it’s authentically done. “If you want to be able to use it in a way that is established scientifically, it means a very specific thing, and that means you can’t have hydroponics and you can’t have trucked-in soil from other places, because now you’ve ruined the terroir and it’s no longer a pure appellation,” he said. “At the end of the day there has to be a measure, a metric, by which you assess quality, and marketing and zip code is not a metric. Appellation is one tool in the tool kit, but another tool is not shying away from DNA testing and use it to accelerate what you do and then file patents.”
Stressing communication and cooperation within the industry, Gaudino said the tipping point for when Big Ag will play its hand is when federal prohibition ends. “It will be when the federal government says it is no longer federally illegal, because the one thing holding all these companies back is that it’s still on the [DEA] Schedule, and conservative investors will not be comfortable [until it’s off]. That’s what’s holding them back.”
How long will it take them to ramp up? “Considering you can probably without a lot of effort get four to six generations a year using just the basic tools, and they probably have other things that would make it even better—tricks like double-haploid breeding—once the technologies are developed it makes things go really quickly,” said Gaudino. “Can they make the stuff we’re offering? They’ll be there in no time. Hell, I have a handful of markers I’ve been doing less than five years, and I have no money. I’m broke. I haven’t gotten money for research for my company since last summer.” Investment in Steep Hill’s R&D program specific to genetics has in fact been suspended since last summer, he added.
That doesn’t quite reflect well on the industry, does it? “No, it doesn’t,” he said. “Imagine what you could do with $3 million a day.”