In a previous article, we explored one potential current opportunity for entrepreneurs interested in psychedelics and mycelium—producing non-psychoactive mushroom supplements. But are there any current commercial opportunities that involve psychedelics? The short answer is: that current legal options (i.e. legal at the state level or the state and federal level) are limited.

There are four different paths under which psychedelic operations may exist in the United States. Two approaches apply to commercial operations—the traditional medical path and the emerging non-medical state-regulated path, while the other two paths are better seen as non-commercial—underground therapy and religious use. There are also illicit sales of psychedelic drugs separate from any therapeutic or ceremonial use. However, as might be expected, individuals engaged in such activities typically do not utilize the services of corporate attorneys.

Commercial Operations

Traditionally Regulated Medical Practice

The first path, that of traditional medicine, currently offers patients limited options. The only psychedelic drug that is approved (outside of clinical trials) for psychiatric use—as opposed to anesthesia—through the traditional medical system is Ketamine. On March 5, 2019, the U.S. Food and Drug Administration (FDA) approved esketamine (a component of Ketamine and sold under the brand name Spravato) for treatment-resistant depression. As a Schedule III drug, it is also possible for a physician to proscribe Ketamine for non-FDA-approved indications—so-called off-label use.

As noted on the chart on the following page, other than Ketamine, all major psychedelic drugs are categorized as Schedule I drugs under the Controlled Substances Act (CSA). Being categorized as Schedule I means these drugs have no accepted medical use, are considered at elevated risk for abuse, and, with limited exceptions (like an approved clinical trial as discussed below), are illegal to possess, sell, or consume under federal law. The only opportunity to currently participate would be through an active clinical trial or via an argument under the Right to Try Act of 2018 (an act which provides a pathway for patients with life-threatening diseases or conditions to access unapproved treatments).

Emerging Non-Medical State-Regulated Path

This path does not currently exist in the United States. Though, Oregon is actively in the process of establishing a model for psilocybin that would be like the state’s current medical cannabis system. It would be separate from the existing medical system and subject to an entirely new state regulatory regime that would govern the production, sale, and consumption of psilocybin. How will the federal government react to another new industry that operates in clear violation of the federal black letter law? Stay tuned...

Oregon plans to accept applications for Facilitators, Laboratories, Manufacturers and Service Centers starting January 2023.

Non-Commercial Operations

Underground Therapists

If you read Michael Pollan’s latest book on psychedelic drugs, you are probably familiar with what are described as “underground therapists.” Mr. Pollan notes that he would not have qualified for any of the active clinical trials, so beyond sticking to Ketamine, his only option was unregulated therapy with underground therapists. These therapists will likely benefit from further decriminalization measures and may be able to transition to state-regulated systems as these go live. Until that occurs, there are no real commercial opportunities for these practices as they exist outside state and federal law.

Non-Commercial – Religious Use

Several religious organizations have claimed their use of psychedelic drugs is protected under the First Amendment. In one high profile case, Gonzales v. O Centro Espírita Beneficente União do Vegetal, the Supreme Court sided with the New Mexico branch of a Brazilian church that claimed their usage of ayahuasca (which contains DMT, a Schedule I drug under the CSA) was permitted under the 1993 Religious Freedom Restoration Act. The Drug Enforcement Agency (DEA) currently has guidance published for those interested in petitioning for a religious exemption to the CSA. For obvious reasons, religious exemptions from the CSA do not present compelling opportunities for entrepreneurs.

2022 Active FDA Clinical Trials and State-Regulated Systems

* Does not count clinical trials in foreign countries that do not study a U.S. FDA-regulated Drug Product. There is considerable research being conducted in Europe, with Switzerland being a leader.

** This refers to a state-licensed system outside the medical establishment (hence in compliance with state, but not federal law) akin to the current cannabis state regulatory regimes. This category does not include measures focused on decriminalization instead of those that support commercial operations. This is not always a simple determination, as some proposed legislation (Michigan, for example) may not legalize commercial products but does specify people can charge a fee for counseling. Special thanks to Marijuana Moment for assembling a useful list of measures in 2022.

2022 Proposed Legislation and Ballot Initiatives that could Impact Legal Status of Psychedelics

Colorado

The Natural Medicine Healing Act of 2022 is a groundbreaking proposed ballot measure in Colorado. This measure would establish regulated access to certain psychedelic substances under the supervision of a licensed facilitator. There would be oversight for licensed healing centers that manufacture, grow, store, distribute and sell the natural medicine, including requiring proposed businesses to meet certain ESG standards. Licensed “facilitators” would provide natural medicine services, including supervised use of the substances. For this measure to make it to the Colorado ballot in November 2022, it needs 124,632 valid signatures. The campaign committee, which is chaired by VS founding partner Josh Kappel, is well on their way.

Washington

On January 5, 2022, a psychedelic legalization bill, the Psilocybin Wellness and Opportunity Act, was pre-filed in Washington State. If enacted, this would create a state-licensed system outside of the medical establishment that would permit adults to consume psilocybin and psilocin under the care of trained care providers. The bill mandates that by January 2, 2024, Washington shall begin accepting license applications for the manufacture of psilocybin products, operation of psilocybin service centers, facilitation of psilocybin services, and testing of psilocybin products.

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