Some very powerful people are trying to corner the market on legal weed and turn their company into the Monsanto of marijuana. Who are they? And can they be stopped?
The search for the hidden forces that might soon control the marijuana industry began, as many wild journeys do, in Las Vegas. It was last November, and I was party-hopping at the biggest weed-business gathering of the year, a week of overlapping conferences and decadent soirees. I was a few blocks off the Strip, celebrating a new line of bongs and pipes in a penthouse with chandeliers and dark-wood furniture, when I happened to meet a faunlike 40-something man named after a character from The Jungle Book: Mowgli Holmes.
Holmes had something he needed to get off his chest—a quagmire that had been keeping him up at night for the better part of a year. He was soft-spoken but had an earnest intensity that made me lean in to hear him. Little did I know that he was about to set me off on a months-long quest that would involve an obscure company potentially worth hundreds of millions of dollars, the most prominent cannabis scientists in the world, and the former talk-show host Montel Williams—all to uncover an audacious plot with profound implications for one of the country’s biggest agricultural products.
All around us, former drug dealers chatted with finance types, passing vape pens as they pressed one another for information, boasting all the while about how much smarter and better positioned they were than everyone else there. The people in this room were vying to become major players in a marijuana industry that was getting larger every day. A sense of inevitability around legalization had left everyone giddy, but few understood that the greatest obstacles were yet to come. Holmes pulled out his phone and showed me what he saw when he looked at this surge of people working in weed: a 3-D visualization he’d created to illustrate the thousands of kinds of pot now on the market.
Turns out he had a Ph.D. from Columbia and ran a lab in Portland, Oregon, where he’d been mapping the genetics of every marijuana strain he could get his hands on. He pointed to the cluster of strains that taste like tangerine, and then the ones that provide a calming high with none of the mind-racing anxiety so many casual users despise. There were the famous strains, like Sour Diesel and Blue Dream, as well as little-known varieties bred as folk medicine by underground botanists. But this database—a cornucopia of cannabis DNA—had captured a very specific moment in time, a moment Holmes believed would be over soon. The age of artisanal marijuana might have already peaked, and the era of corporate pot was just beginning.
Intrigued, I met up with him the next day to hear more. The first thing he said was: “Be nervous.”
According to Holmes, a secretive company called BioTech Institute LLC had begun registering patents on the cannabis plant. Three have already been granted, and several more are in the pipeline, both in the U.S. and internationally. And these are not narrow patents on individual strains like Sour Diesel. These are utility patents, the strongest intellectual-property protection available for crops. Utility patents are so strict that almost everyone who comes in contact with the plant could be hit with a licensing fee: growers and shops, of course, but also anyone looking to breed new varieties or conduct research. Even after someone pays a royalty, they can’t use the seeds produced by the plants they grow. They can only buy more patented seeds.
“Utility patents are big. Scary,” Holmes said. “All of cannabis could be locked up. They could sue people for growing in their own backyards.”
Pot is an industry worth over $40 billion, which makes it the second-most-valuable crop in the U.S. after corn. And even though weed is still federally forbidden, it sounded like whoever was behind BioTech Institute had spent the past several years surreptitiously maneuvering to grab every marijuana farmer, vendor, and scientist in the country by the balls, so that once the drug became legal, all they’d have to do to collect payment is squeeze.
Very High Stakes
“The craziest part is no one knows who’s behind this or when they plan to enforce what they have,” Holmes said. He’d heard that BioTech Institute was owned by a mysterious billionaire with an unclear agenda.
Even worse, he believed, the patents might affect our ability to unlock the therapeutic potential of cannabis. With all other crops, from soybeans to carrots, the introduction of utility patents has created obstacles that threaten to reduce genetic diversity. Right now, the word “cannabis” is similar to the word “dog”—covering everything from Chihuahuas to huskies. Each plant contains its own mix of compounds. Some strains suppress your appetite, and others give you the munchies. Some get you high, and some don’t. Many seem to have incredible healing properties. Research in mice has shown that the compounds we’re most familiar with can do everything from increase bone density to shrink tumors, but we’ve hardly scratched the surface on the less common compounds.
“The medical gold mines that we’re looking for are buried in random varieties that are spread around,” Holmes said. Like many people, he hoped legalization would lead to clinical trials, to prove the benefits of marijuana are more than anecdotal. But he worried that one company controlling access to so many kinds of pot would drastically restrict research. And considering how long weed had been illegal and underground, he felt it was ludicrous to claim all these strains were truly novel, as patent law requires.
“I want someone to challenge the patents by proving all of these strains existed before.” He blinked and met my eyes with a solemn zeal. Here came the sales pitch. Questioning the patents’ validity would require cooperation from all corners of the marijuana world. He had a database of strains, but he didn’t think that would be enough. Would I help him get the word out, so more people knew about BioTech Institute?
I didn’t say anything, and then, just like that, Holmes was gone. This was crazy. Wasn’t it? I alternated between feeling paranoid that he might be right about what a big deal these patents were and considering the possibility he’d been exaggerating or making it all up. I felt stoned and bewitched. But if what Holmes was saying was true, it was explosive.
I staggered down the hall and ran into a trusted source who does serious medical work. When I asked her about BioTech Institute, she gasped and forwarded me a memo that had been circulating among the most influential people in marijuana for two months. This formal explanation of BioTech Institute’s entirely legal annexation of weed’s intellectual property had been written by another pot geneticist, Reggie Gaudino. He estimated that together, all of the company’s desired patents would be worth hundreds of millions of dollars and could eventually affect every marijuana strain currently being bred. Every. Single. Strain.
After Vegas, I brought up this story with every contact I encountered. Most had no idea what I was talking about. But it was the people who did who really alarmed me. Eyes grew wide. Voices became either hushed or loud and angry. Texting buddies suddenly needed to confirm we were off the record. In four years of observing the marijuana game, I’d never encountered a situation that struck fear and fury in so many people’s hearts.
The Invisible Company
Outside of these patents, BioTech Institute barely exists. The company has no website, manufactures no products, and owns no pot shops. Public records for BioTech Institute turned up two Los Angeles addresses—a leafy office park an hour northwest of downtown and a suite in a Westside skyscraper—both of which led to lawyers who didn’t want to talk.
A source familiar with BioTech Institute’s patenting process estimated that the company had spent at least $250,000 in research and legal fees on each of its patents. I knew that if I could figure out who was paying for the patents, I might learn who held the keys to the future of the marijuana industry. But I hardly knew where to start.
Broadly speaking, the people in pot can be divided into three groups, based on when they decided to start working with weed. First there are the Outlaws. These are the drug dealers and the backwoods contrarians: the folks who knowingly chose a so-called life of crime, often because they dislike mainstream society or believe in the spiritual and physical benefits of cannabis.
Then there are the Green Rushers: the financiers and entrepreneurs who only got involved once it looked like the country was moving inexorably toward legalization. Many Green Rushers like to get high, but most are primarily concerned with making money. They typically try to take as little legal risk as possible, which often means starting businesses that relate to marijuana but do not involve the plant itself. Banks fall under federal law, so anyone who opens a dispensary could have their assets seized.
Finally, there are the people I think of as Code-Switchers. Most Code-Switchers turned to weed back when the economy was faltering and there was an even greater overlap between the black market and the medical-marijuana market than there is now. Code-Switchers saw regulated pot on the horizon and perhaps had experience in a legal industry but still had to contend with shady situations and police raids. They learned to speak the language of the Outlaws, but they also knew how to appear professional in front of the Green Rushers, giving them the powerful (and lucrative) ability to toggle between worlds, or code-switch.
The most notable inventor on BioTech Institute’s patents is a Code-Switcher named Michael Backes, a renowned figure in California marijuana circles. Some call him Morpheus, his username on weed message boards, and he does look a bit like a white version of the Matrix character: bald and defiant, with piercing eyes. Backes co-founded one of the most medically legitimate marijuana dispensaries in L.A. and is familiar with rare strains from around the world. He’s also consulted on Michael Crichton novels and Hollywood blockbusters.
I e-mailed Backes. He refused to talk and said he was no longer working with BioTech Institute.
Further poking around led me to a handful of companies run by people associated with BioTech Institute, based out of the same lawyers’ offices. There was BHC Consultants. There was NaPro Research. And then, most interestingly, there was Physics.
Phytecs has a website but does not yet sell anything and never uses the words “marijuana” or “cannabis”—a classic Green Rusher move to minimize legal risk. Instead, Phytecs talks about “products and therapies targeting the endocannabinoid system,” meaning the receptors in the body that respond to pot’s primary compounds, called cannabinoids. Working with cannabinoids is generally more legal than working with cannabis because they can be synthesized in a lab or extracted from other plants.
I was stunned to see that the Phytecs team included two of the greatest authorities on cannabis in the world: the legendary biochemist who discovered that THC is the thing that gets you high and a neurologist named Ethan Russo, who helped develop the first modern marijuana-derived prescription drugs. Over the phone, Russo told me that Phytecs is “a very small, circumscribed R&D company” with plans to make products both with and without the cannabis plant. (Phytecs later clarified that the company works with compounds from “a range of sources, both natural and semi-synthetic.”)
“We have a very active program in dermatology,” Russo said, potentially involving both prescription products and over-the-counter cosmetics.
So were Phytecs and BioTech Institute part of a single, larger undertaking? Russo directed all of my questions about the business operations, and the patents, to the lawyers.
“Some of this stuff is delicate. Obviously we’re engaged in a business, the legality of which, well… We’ve got a new administration...” Russo said, and wondered aloud what would happen with cannabis under Trump, concluding: “You have to be circumspect.”
The Greed of the Outlaws
It was around this time that I began to rule out the possibility that an Outlaw was behind BioTech Institute. Everything seemed too grounded in conventional business logic. BioTech Institute appeared to be following in the footsteps of Big Ag companies like Pioneer and Monsanto, which began accumulating utility patents on conventional crops in the 1980s, when patents on plants became legal.
At first, Big Ag sought patents to protect the genetically modified organisms that took years and millions of dollars to develop, like pesticide-laced corn. But over time, acquiring plant-utility patents turned into a race to call dibs. In one case, a seed company got a utility patent on a centuries-old yellow bean widely available in Mexico, and it took almost ten years to definitively overturn the claim.
Monsanto in particular became shorthand for rapacious capitalism and corporate influence over government policy—exactly the things that most hippie Outlaws say they were trying to escape by growing weed off-grid.
Considering how expensive patent battles have become in Silicon Valley, an experienced tech investor would know to lock down pot’s intellectual property early.
In February, I went to the mountains of Northern California, where tens of thousands of marijuana farmers have lived since the 1970s. One Sunday, I had breakfast at the Eel River Café with two men in their 50s who have been growing pot for their entire adult lives: Kevin Jodrey, the proprietor of a cannabis nursery, and his friend Ziggy.
Jodrey is a fast-talking community leader who says his nursery’s clones produce $150 million to $200 million worth of weed each year. Recently, he’s been encouraging farmers to get their strains genetically sequenced by Mowgli Holmes, the scientist from Portland. In his fight against utility patents, Holmes had created an option for growers to put their strain data in the public domain.
“I’m trying to get everybody I know to tag every fucking thing they have,” Jodrey said between bites of scrambled eggs and hash browns. “This way, no one’s gonna be able to come to my farm and hit me with a ‘You need to pay me’ kind of thing. That’s just usury.”
Only a quarter of the farmers he’d spoken to had made their genetics public.
Many were suspicious of Holmes. After all, he too was running a business. His company planned to use genetic data to help breed better cannabis. So Holmes might also end up selling marijuana seeds, and the patents could eventually affect his bottom line.
Other Outlaws told Jodrey they hoped to get their own patents.
I began to see the holes in the nostalgic notion that before the suits came in, everyone who grew pot was an altruistic bohemian out to spread the love. Drug dealing is profitable: That’s why people take huge risks to do it.
Consider Ziggy and Jodrey. They want to stop BioTech Institute, sure, but they also respect the hustle.
“If I saw the dollars that were available in cannabis, and I had the funding to do a clandestine project that gave me a monopoly? Absolutely I’d take that,” Ziggy said.
“That’s good business,” Jodrey conceded, “but get ready. We’re coming back at you, buddy.” He wagged his finger, addressing the patent inventors. “If you don’t think we’re gonna brawl it out, you’re crazy.”
Chasing Millionaires and Billionaires
In all likelihood, the people behind BioTech Institute were Green Rushers who stayed anonymous to avoid being associated with a quasi-legal endeavor.
If what Holmes had heard was true, and the investor was indeed a billionaire, one obvious candidate would be Sean Parker. You might remember him as the guy who co-founded Napster and was played by Justin Timberlake in The Social Network. The maverick tech magnate gave over $7 million to the 2016 weed-legalization campaign in California. Parker’s insistence that his donations were purely philanthropic merely fueled speculation that he had covert plans to invest in pot. Considering how expensive patent battles have become in Silicon Valley, an experienced tech investor would know to lock down pot’s intellectual property early.
Parker’s publicist stated that Parker is not involved in BioTech Institute, nor does he have any investments in the cannabis industry.
The investor wasn’t necessarily a billionaire. There are tons of Green Rushers worth merely tens or hundreds of millions of dollars, any one of whom could afford to pull off a feat like BioTech Institute. Plenty of Silicon Valley types, lured by the relatively permissive and professional marijuana economy of the Bay Area. Scores of pothead Hollywood producers, hip-hop greats, and retired athletes. The kind of Wall Street guys who played roulette with our economy and lost but never experienced any consequences for that, so don’t really mind violating federal law. Titans of the alcohol and pharmaceutical industries who saw a shift coming and thought, If you can’t beat ’em, join ’em. Really, the investor could be anyone.
By chance, right when I began trying to track down potential pot plutocrats, I was invited to a dinner for cannabis investors, organized by a former Bear Stearns trader named Gregg Schreiber.
“This is extremely high-end shit,” Schreiber told me. “These are not millionaires. These are billionaires!”
Billionaires! He rattled off names of high-net-worth individuals who would be there. So on a Wednesday in February, I made my way to a boutique hotel near the ocean for the first Green Table dinner party.
The crowd was mostly gray-haired white men in suit jackets or cashmere. There was champagne and wine and a weed-infused meal—a series of four-bite courses plated with jubilant swirls of sauce—served at two long tables with candles and centerpieces of twigs and tulips. A guy soloed on a cello in the corner. Becky with the Good Hair was there, and several former football players. There was a handful of pot entrepreneurs and a rep from High Times. There was a guy with long blond hair wearing a suit with a pocket square and flip-flops he claimed were Gucci and worth $500.
There were so many Green Rushers, I figured someone must know something. I met an investor in a suit and a backward baseball cap who played professional polo. When I brought up pot patents, he thought I meant trademarks, like logos and brand names. I approached person after person, asking with practiced nonchalance whether anyone knew anyone investing in marijuana patents, but no one did.
Disappointed, I decided most Green Rushers were too, well, green to put together something like BioTech Institute. So if the Outlaws knew too much and the Green Rushers knew too little, perhaps the people I was searching for fell somewhere in the middle. And sure enough, there was one promising lead I needed to follow up on, and it involved a very famous Code-Switcher.
A Clue from Montel Williams
The investigation took a surreal turn on another day in February, when I spent a nervous afternoon hour in the lobby of the Ritz-Carlton in downtown L.A., waiting for a celebrity who was running late. My snooping had led to a rather unexpected person: former daytime-talk-show host Montel Williams. Unlike Whoopi Goldberg or Willie Nelson, Green Rushers who jumped into the weed game only recently, Williams was a pot entrepreneur long before it was trendy—a true Code-Switcher.
I suspected Williams might be involved in the patents because, in 2011, he had helped start a Sacramento marijuana dispensary called Abatin Wellness Center, which shared key personnel with BioTech Institute. In 2012, Backes was described in an interview as the “head of R&D for Abatin,” and in 2016, the attorney who runs Phytecs and BioTech Institute was cited as the president of Abatin. On a hunch, I called the current face of the Sacramento dispensary, Aundre Speciale, who said she still worked with Backes, though she herself wasn’t part of Phytecs or BioTech Institute.
“It’s separate groups, and we have some overlapping things,” she said. “We have a lot of crossover.”
Williams had mentioned in a 2013 interview that he was no longer working with Abatin, but it seemed totally possible that he had the money and the know-how to fund BioTech Institute. After all, the man was on TV for 17 years and has been paid to hawk everything from blenders to payday loans.
Williams finally arrived at the Ritz, wearing a lilac button-down with a white collar, as well as several pieces of shiny, perhaps diamond-encrusted jewelry, and immediately announced, “I gotta go wash off some makeup.” He disappeared, and I was left with Jonathan Franks, his right-hand man, the LeFou to Williams’s Gaston. Franks sipped a Monster energy drink and name-dropped his client at the front desk to finagle some space for us to talk in the Wolfgang Puck restaurant on the 24th floor, where we settled into a booth with waist-to-ceiling views of the 110 Freeway and several choice parking lots.
Williams has been preaching the benefits of medical marijuana since he was diagnosed with MS in 1999. Now he was in town to promote his new cannabis-oil line, Lenitiv Labs, at an event that night called the CannaCool Lounge.
Unless the hustlers in the rest of the cannabis industry take a break from shoving one another aside to work together against the patents, BioTech Institute could have the market cornered in a few years.
Soon after the star plopped down across from me, it became clear that he treats much of his daily life as if he’s conducting an IRL infomercial. He hardly breaks eye contact, and I was quickly won over by his Bill Clinton-level charm and his fluidity with pot jargon. He certainly knew more about weed than any of the Green Rushers at that dinner party.
Williams kept mentioning his “proprietary” formulations. I asked whether he had acquired any patents.
“No,” he said.
At another point, Phytecs’ medical director, Ethan Russo, came up in conversation, and I asked Williams if they were working together. He said they had in the past, back when he was with Abating.
I was surprised to hear Williams associate Russo with his time at Abatin. Russo denied working with Abating.
I asked Williams if he had worked with Michael Backes at Abating.
“Yes, yes, and then I kind of broke away from that group of guys completely, and I got out of the business for a while,” he said. I asked why, but he wouldn’t say.
So Williams hadn’t funded the patents, but it really was starting to sound like the people behind Abatin, Phytecs, and BioTech Institute had been working together for a while.
After the interview, I was waiting for the valet when, suddenly, Franks started telling me why Williams had left Abating.
“It was keeping him up at night,” he said. “And quite frankly, it was keeping the investors up at night, too. Because the investor in that room has two children at home. A wife. There were times where he was, like, he looked like he had aged ten years in 18 months.”
Aha! The investor. As in, a single investor. Who has two children. Now we were getting somewhere. This could very well be the same person who was financing BioTech Institute.
Just then, my Honda pulled up.
I arrived at the CannaCool Lounge a few hours later, determined to get Franks to tell me more. Several hundred Green Rushers mingled in a ballroom encircled by faux-gilded columns, sampling pot-laced polenta and pork sliders and ice pops as they passed by on silver platters. Most partygoers were black and wearing red-carpet-ready ensembles. A lesser-known member of the Wu-Tang Clan was there.
Williams, in a black turtleneck and black jeans, was doing what he does best: connecting with fans and selling the hell out of his product.
“Push this button right there,” he instructed an older woman, handing her a vape pen. She took a hit. “Lady, you got a big draw,” he said. “She’s a hose! A vacuum!”
The woman swooned.
By the time I found Franks, sweat was rolling down his face. I asked about the investor, and he smirked. “You’ll never find him,” he said. “There’s no trace of him on the Internet.”
So Parker was definitively out. His every move, from Napster to Facebook to his lavish wedding in the woods, had been public. I asked about the relationship between Abatin and the other companies.
“They’ve had so many names,” Franks said. “One guy has the money.”
“Well, how did he make his money?” I asked.
“Cosmetics,” he said. Russo’s words about Phytecs developing skin-care products came back to me.
“I worked for him for a while,” Franks added. “He lives in Beverly Hills. They’re not bad guys.”
I asked for more specifics, but Franks demurred. Okay, I said. If he couldn’t tell me the investor’s name, maybe he could tell me where to find it on my own?
Franks thought for a minute. Another drop of sweat ran down his cheek. “Abatin tried to open a dispensary in Washington, D.C.,” he said. “Look there.”
Uncovering the Pot Plot
A month later, I got a series of e-mails from the Washington, D.C., Department of Health. It was the results of my Freedom of Information Act request for every application to their medical-marijuana program. Abatin hadn’t received a dispensary license, but it was approved for a cultivation center that is currently growing cannabis for D.C. patients. I found Abatin’s documents and began scrolling. On the first full page, in a list of “each member of the partnership or limited liability company,” just beneath Montel B. Williams, was the name of a man who lived in Beverly Hills and had made his money in cosmetics: Shawn Sedaghat.
After all that, was it just some random guy?
In one respect, Franks had been wrong. Once I had his name, Sedaghat was not impossible to find online. According to the L.A. Times, Sedaghat sold his family’s cosmetics-packaging company for $255 million in 1997. Since then, he’d founded at least two more cosmetics businesses. And his $10.3 million mansion in Beverly Hills was featured in the music video for Britney Spears’s “Slumber Party.”
I also discovered that, in the back of Backes’s 2014 book, Cannabis Pharmacy, one of the first people he thanked was “Shawn for his peerless vision.” A source familiar with Backes’s work independently mentioned that his research was being bankrolled by a Middle Eastern man who ran a cosmetics-packaging company. And Fred Gardner, editor of the medical-marijuana journal O’Shaughnessy’s, said that one of the other inventors on BioTech Institute’s patents had introduced him to an Iranian man named Shawn at a cannabis festival in 2014 or 2015.
“I could tell from how they were talking, like, ‘Oh, Shawn is here.’ Like Bob Dylan had walked into the room.” Gardner recalled. “I was definitely left with the impression that he was the decision maker in their business.”
But was Sedaghat really a billionaire? In an unsuccessful 2011 Abatin application to open a dispensary in New Jersey, a letter from a bank read: “Shawn Sedaghat and affiliates maintain balances in the high eight figures”—that is, nearly $100 million.
I soon learned that Sedaghat’s current cosmetics-packaging concern, Yonwoo/PKG, has an office in the same skyscraper as Phytecs and BioTech Institute. Yonwoo/PKG is in suite 2240. Suite 2250 belongs to Gary Hiller, the lawyer who runs Phytecs and BioTech Institute.
Each time I went there, I was told that Hiller and Sedaghat were out of town. Once, a well-known marijuana activist named Don Duncan answered the door to Hiller’s suite and said he worked for BHC Consultants. Who wasn’t part of this murky network of companies? I wondered. Duncan referred to the two suites as “separate businesses but all the same family.” (He later denied knowledge of Sedaghat’s involvement.)
It was certainly starting to look like Hiller and Sedaghat were behind a stealthy conglomerate. I later found at least seven businesses with both Hiller’s and Sedaghat’s names or addresses attached, six of which have filed renewal forms in the past two years. And a cannabis researcher who was approached about a job by someone involved with BioTech Institute told me, “One hundred percent, this is a single group of people working together under several names.”
Hiller said that Sedaghat was not the primary investor behind BioTech Institute and that BioTech Institute and Phytecs and NaPro and BHC “do not have a relationship, other than the fact that I am involved with each of these companies,” although “individuals from some of these companies have collaborated with one another from time to time.”
Sedaghat’s attorney confirmed that he is an investor in Phytecs and “is an investor and has business relationships with a number of non-cannabis-based, multi-national public companies that may have had, or currently have, some involvement with securing intellectual property related to cannabis.” However, other than that, Sedaghat has not “been an investor in, or in any sense been professionally affiliated with, any cannabis-related business” since 2015.
The whole thing seemed more confounding than ever. What “multi-national public companies” was Sedaghat’s attorney referring to? He seemed to be allowing for the possibility that a broader network of investors and companies could be occupying this space.
Either way, with hardly anyone paying attention, whoever was behind BioTech Institute had pulled off a brilliant and ostensibly legal coup. I still didn’t know whether they intended to start charging licensing fees and, if so, whether they would allow research to be done at an affordable rate. It suddenly felt possible that even if the U.S. legalized marijuana, the anticipated boom in clinical trials and medical discoveries would never come to pass. A potential revolution in health and wellness might become a whimper, with innovation hemmed in by the restrictive clauses of utility patents.
Story Source: The above story is based on materials provided by GQ
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