Regulatory Hurdles Challenge Oregon Psilocybin Providers

This article is part 2 of a two-part series on the challenges facing psilocybin business operators in Oregon following Measure 109. Read part 1 here.

Oregon entrepreneurs who are launching psilocybin business this year must navigate challenging requirements as they seek liability insurance and manage restrictions around land use. 

Psilocybin facilitators are regulated by the Oregon Health Authority (OHA) which last year issued a 70-page penultimate draft of rules for the production and consumption of psilocybin, the active ingredient in magic mushrooms.

Now that supervised use of psilocybin is legal under state law and anyone over age 21 who pass a state test can guide people through the experience, many have been looking to lawyers for guidance. 

Kaci Hohmann and Dave Kopilak, attorneys with the Emerge Law Group, have been providing advice to psilocybin entrepreneurs including a talk last year at the Horizons Northwest conference in Portland entitled “Operating in Oregon Under the Psilocybin Services Act.” The attorneys, who are closely following the rollout of psilocybin companies, say these business owners should think carefully about insurance and their relationships with landlords. 

Insurance

Hohmann said insurers are generally optimistic that underwriters will be able to provide insurance for those facilitating psilocybin sessions in Oregon. These policies provided by insurance companies include standard commercial general liability insurance, product liability insurance for manufacturers, and professional liability insurance for facilitation services.

“They’ll probably have higher than usual premiums and deductibles and some unique exclusions,” said Hohmann of those operating under the provisions of Oregon Measure 109 which legalized psilocybin. “Insurance isn’t required under the act, so if it’s prohibitively expensive, companies can forego it.”

Kopilak said that general liability insurance might not cover specific services offered by providers. Malpractice insurance, for example, might be needed for some facilitators, rather than coverage for more common slip-and-fall claims. 

“It remains to be seen what the policies look like, and how much the premiums are,” said Kopalik. He notes that without insurance, psilocybin service providers will need contracts to cover many of their offerings. 

“Every service center will have a client agreement. And it will cover all the OHA paperwork and everything else,” says Kopalik. “But I would recommend to a service center client, limit your liability. Like, ‘I’m not liable so long as I comply with the rules and don’t do anything grossly negligent.’”

Land Use

Meeting land use requirements will also be a pressing concern for psilocybin entrepreneurs. Just leasing a space to provide psilocybin is going to be complex. Vince Sliwoski, a business lawyer, managing partner at the law firm Harris Bricken, and editor of the Canna Law Blog and the Psychedelics Law Blog, compiled a list of 10 things to consider about property leases for psilocybin businesses.

According to Kopilak, service providers need a landlord’s consent to apply for a license under the new regulations. As with cannabis businesses, many entrepreneurs may seek to buy their property to simplify requirements.

People seeking to start a psilocybin service center must also figure out where they want to be – inner city, stealthy suburb, sylvan retreat – and find a land use lawyer to do a zoning analysis, including building classification, analysis, and land use, before signing a contract.

Kopilak added that psilocybin entrepreneurs should take a look at a map of Oregon cities and counties, to see which has voted to block psilocybin services centers and where they will be permitted.

Maps and Jurisdictions

Measure 109 gave voters in local municipalities the chance to decide, in a general election, whether to opt out of allowing psilocybin businesses to operate in their area. In November 2022, 25 of Oregon’s 36 counties, plus 111 of its 241 cities, voted to opt out of the state program or pause it for two years.

The opt-outs mostly cover rural Oregonians, some of whom voted to keep psilocybin services at arm’s length, even though mental health care is not as good in rural parts of the U.S. as it is in cities. 

Half of Oregonians live in the Portland metro area. The broad takeaway is that in 17 of Oregon’s 20 largest cities, state-licensed cultivation sites and supervised centers for use of the psychoactive drug will be legal. Cities and counties can still regulate manufacturing facilities and service centers, under time, place, and manner standards in land-use ordinances.

“Up to 2.9 million Oregonians will have access to the breakthrough treatment in their local city or county,” said Sam Chapman, executive director of the Healing Advocacy Fund which supported Measure 109. “And in places where a ban was passed, some of those are temporary.” 

Synthesis Institute 

A planned psilocybin retreat run by the Synthesis Institute outside Ashland, Oregon near the California border, escaped a vote that would have halted their project. For much of 2022, it looked like the Dutch company’s plans to renovate and host psychedelic retreats at the Buckhorn Springs Resort would be stymied by voters.

Voters in Jackson County, where the center is based, rejected (by 52.5% to 47.5%) the opt-out proposal, known as Measure 15-203. Had it passed, the measure would have prevented psilocybin service centers from operating where Synthesis acquired its retreat property.

According to a news release, Synthesis has operated psilocybin retreats legally in the Netherlands since 2018. The company says it has previously turned away approximately 50% of applicants because of medical mental health diagnoses.

Katz notes that SSRI use by retreat applicants or prospective participants has historically been the most common reason that Synthesis has had to turn people away, “given current best practices and public knowledge on the use of psilocybin while on SSRIs.” 

“In recent years there has been new research that shows there is less risk than previously thought for some antidepressants and psilocybin, allowing us to explore the possibility of different policies and standards of practice around these applicants in the future,” says Katz. “The new psilocybin laws going into effect in Oregon in 2023 will allow people with medical diagnoses to seek out legal, regulated psilocybin services, so the SSRI conversation will continue to be particularly relevant.”

While there are many parallels between cannabis and psilocybin in the process towards regulation, Hohmann notes that the jump from medical marijuana to adult use marijuana was not as great as the jump from the underground psilocybin market to the OHA-regulated market. 

“The services element, which creates more legal issues, is what makes it really unique. And then, of course, you don’t have any federal guidance,” Hohmann cautioned. She notes that the biggest challenge is that state regulation of psilocybin has never been done before.

“We don’t know if service centers in Oregon are going to be dominated by a wellness-based retreat model or whether there will be a plethora of small businesses offering clinical environment settings or something new entirely,” she said.

A Practitioner Prepares

Rebecca Martinez is the founder and executive director of the Alma Institute, a nonprofit which is opening first a psilocybin facilitator training center, and later a service center, in Portland. According to Martinez, Alma has 900 people on its waitlist wanting to train as facilitators, although she says they can only take 40 in the first cohort. 

Two-thirds of these applicants are Oregonians, many are global. She expects the first cohort will begin training at Alma around March, with opening and closing retreats in local settings such as the Columbia River Gorge and the Oregon coast. Alma is also offering online instruction. Martinez says the service center will be built out and ready for the public by August 2023. 

“So far, the City of Portland has been pretty accommodating by not setting up any unique time, place, and manner regulations that would affect our ability to provide services to the community,” Martinez told Lucid News. “From what I’ve been told, they’ll be treating psilocybin service sites with the same rules they apply to professional service buildings, (rather than as) medical offices or campuses.”

Martinez is concerned about the tax code and 280E’s E. Under IRS code 280E, if a trade or business is trafficking in a controlled substance, it cannot take any business deductions. Businesses expect to separate the handling of the drug part of the business from the service side, the talking and hand-holding. “We’re looking at creative solutions so that we have the smallest legal entity that is handling psilocybin,” she said. 

To preserve its pending nonprofit, 501c3 status, Alma also cannot handle Schedule 1 substances, such as psilocybin mushrooms. Like many businesses in this space, they are looking at forming separate LLCs just for the purchase and sale of mushrooms at licensed service sites directly to consumers. 

Seattle-based clinical psychologist Tony Rousmaniere bought and is remodeling a two-building property in Hollywood District of Northeast Portland, offering it to Alma at ultra-low rent for the next five years.

“Our site is owned by a major supporter who really wants to see this become accessible to the community,” says Martinez. “We’re very fortunate. However, it’s not a replicable model, unless there are more people like this person who come out of the woodwork.” 

Even with that significant donation, Martinez says it would be “near impossible to operate an affordable service site, if that entire operation is under tax code 280E, which means we can’t write off most business expenses, like a normal startup.” 

According to Martinez, having two buildings could make it easier to limit the billable hours devoted to the handling of psilocybin. 

“In this scenario, the client would probably walk down with their facilitator, they would purchase the psilocybin directly from that person who’s working at, essentially, the pharmacy, and consume the (mushrooms) right there. There would be a log that’s kept, and then the facilitator and the client would return to the session room and carry on. The idea is that the facilitator would never touch or administer psilocybin to a client. It may seem like a loophole, but so far, it’s the best solution we have.”

“The state didn’t really lay out any guidelines for a structure like this, so we’re going to have to figure it out as we go,” Martinez added. “A lot of folks are not even registering their companies until the rules have been finalized.”

Alma will offer a paid, 300-hour apprenticeship to certain graduates. This is on top of the state-mandated 120 hours of training, plus a 40-hour practicum, so they can learn on the job, under further supervision. Martinez is aware that poor training and fly-by-night operators will damage the nascent industry. 

“The stakes are really high, not only for Oregon but for the future of this type of regulated access model,” she says. “I just don’t think that we can afford to cut any corners. These are people’s lives we’re talking about, and we really want to be committed to excellence and help raise the bar and set that standard.”

Wait and See

Kopilak told Lucid News in December that he is not expecting the kind of immediate rush of new businesses that accompanied the legalization of cannabis.

“When cannabis license applications went live in 2016, there were hundreds in the first month. I don’t think it will be anything like that.”

Kopilak pointed out that a facilitator license is not tied to any piece of real property, it is instead for the individual. “Although expensive and time-consuming from an individual perspective, a facilitator license is probably the simplest license to obtain, at least from an overall cost perspective, as facilitators do not need to purchase or lease real property,” says Kopilak. “However, administration sessions can only be held at a service center, and so facilitators will need to own, be employed by, or have some arrangement with a service center. And nobody knows how many service centers there will be in the first year.” 

Kopalik says he’s concerned that there may be too many facilitators and not enough service centers, at least at the outset. “I hope it will eventually stabilize into a sustainable, thriving ecosystem,” he says.

Kopalik says his law firm has clients who have property and will be filing license applications and others who are currently looking to buy or rent property. “It’s coming together for some folks, but the numbers do not appear to be overwhelming, which may not be the worst thing in the world in the long run,” he says.

Hohmann pointed out that some of their firm’s psilocybin clients intend to offer other wellness services, such as bodywork, yoga and meditation.

“There’s an entire wellness movement happening and psilocybin services could play an important role in that movement,” says Hohmann.