Article by: Partner Jeff Zuber, Counsel Raza Lawrence, and Associate Lizzie Fanckboner.

On January 2, 2023, Oregon began accepting applications for its first-in-the nation regulated psilocybin services program.  Under the new regulatory program, licensed psilocybin manufacturers will be permitted to manufacture and distribute psilocybin and psilocybin-based edible products, for use by anyone at least 21 years old at licensed psilocybin service centers, under the supervision of licensed facilitators.  The first psilocybin service centers are expected to open later in 2023.  With psilocybin distribution remaining illegal under federal law, subject to severe criminal penalties, and with local governments in Oregon instituting their own psilocybin-related laws in response to the state program, the world is watching to see how this trailblazing program unfolds.

Federal Law Undertones

As Oregon moves forward with its licensing, the psychedelics industry, which has been solely underground for decades, watches with cautious optimism.  Looming in the background is the federal Controlled Substances Act and the federal law enforcement officers, prosecutors, and courts, which for a long time have viewed psilocybin as a medically worthless and highly dangerous substance.  While the vast majority of controlled substances prosecutions occur at the state level, drug prosecutions are still the most commonly prosecuted type of federal crime, accounting for 31.3% of the total federal caseload in 2021.[1]  And psilocybin is a Schedule I controlled substance under federal law, making its distribution outside of limited federally approved research studies a serious felony subject to draconian prison sentences and financial penalties.  Under the federal sentencing guidelines, distribution of a single kilogram of psilocybin yields a federal “offense level” of 26, [2] corresponding to a recommended sentence of 63-78 months in federal prison for someone with no criminal record.[3]  Distribution of 10 kg of psilocybin yields an offense level of 32, corresponding to a recommended sentence of 121-151 months in federal prison.  With that in mind, compliance with state law is not a defense to a federal prosecution for violation of the Controlled Substances Act.

Fortunately, so far, the federal government has not expressed any interest in interfering with Oregon’s psilocybin services program.  The federally illegal commercial cannabis industry provides a solid precedent for federal prosecutors and law enforcement to take a hands-off approach to businesses complying with state licensing and regulatory systems that violate federal law.  The Oregon Psilocybin Services Act was initially passed by voters in 2020, and it seems reasonable to conclude that, if the federal government had intentions to interfere with Oregon’s program, it would have made that position clear during the two-year planning stage, or at least when the state began accepting licensing applications.  For instance, under President Obama, federal prosecutors sent letters to state and local government officials threatening to prosecute them if they implemented proposed commercial cannabis licensing programs, and federal officials conducted numerous raids of state-legal cannabis dispensaries.  And yet, federal prosecutors have made no similar threats with respect to Oregon’s psilocybin program, and for several years now, the federal government has not generally prosecuted people in compliance with state-regulated cannabis licensing programs.  Nevertheless, individual United States Attorneys have broad discretion to enforce federal laws, and enforcement priorities can change over time.  Until there is a change in federal laws, the prospect of federal enforcement will always be in the background and will likely effectively prohibit any interstate commerce in psilocybin.

Local Challenges

As an initial step to enter Oregon’s psilocybin program, many prospective participants are in the process of working with city and/or county officials and feeling out whether, and to what extent, local governments will be hospitable to the new industry.  City and county governments in Oregon had the opportunity to “opt out” of the licensed psilocybin industry by putting the matter to a vote of their residents in the November 2022 election.  Many local governments did opt out of the program, but there remain many jurisdictions that did not opt out, including most of Oregon’s largest cities. By not opting out, these places have signaled that they are at least somewhat open to working with this new industry.

In the places that will allow psilocybin businesses, psilocybin manufacturer and service center license applicants must obtain a “Land Use Compatibility Statement,” signed by a local city or county official, demonstrating that the proposed use of the property is consistent with local land use and zoning codes.  The steps for obtaining such a signature will vary depending upon local laws and customs.  Some jurisdictions have adopted specific zoning rules for psilocybin businesses, allowing them only in certain designated zones.  In other jurisdictions, local governments will apply the most analogous pre-existing zoning rules.  In many places, even where psilocybin businesses are allowed under zoning or land use rules, applicants will need to obtain a “Conditional Use Permit” from the local government. That process may include a public hearing, where any government officials, citizens, or community groups may make objections.  Accordingly, some degree of outreach to local politicians and neighborhood councils may be necessary, and prospective applicants can improve their odds of obtaining the required approval by demonstrating that they are responsible and active members of the community (e.g., by participating in community service and improvement programs).

Lingering Questions and New Challenges

While Oregon’s rollout appears to be going relatively smoothly, albeit slowly, there are still some remaining questions.  First, the Oregon psilocybin act and regulations provide that certain psilocybin licenses may be issued only to persons or entities that are either Oregon residents or are majority-owned by an Oregon resident (or by multiple Oregon residents).  There are legitimate questions as to whether this residency restriction passes muster under the Dormant Commerce Clause of the United States Constitution, which generally prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce.[4]  Litigation over this issue could cause unexpected disruptions, as has been the case with several legal challenges to state and local cannabis licensing laws that treat local individuals more favorably than those from other states.  In any event, creative out-of-state participants can find ways to comply with the residency rules without majorly uprooting their economic plans, including through the use of management agreements and option agreements, at least until the residency requirement sunsets in 2025.

Some people are also concerned about the lack of confidentiality and privacy for those participating in Oregon’s psilocybin program.  Although the psilocybin ballot initiative passed by voters in 2020 (Measure 109) expressly prevented the government from collecting sensitive personal information without consent, Oregon State Senator Elizabeth Steiner has introduced a new bill, SB 303,[5] that would require psilocybin service centers to provide intimate personal data about clients to the Oregon Health Authority, which would maintain a comprehensive database of psilocybin users.  The data required to be stored would include the “reasons for which a client requests psilocybin services, including the types of behavioral health conditions the client experiences and the nature of any other reasons for which a client requests psilocybin services.” People who do not wish to share their personal data would be dissuaded from using the program and even perhaps denied access.

Given the ongoing federal psilocybin illegality, and the numerous related concerns – including gun rights, immigration, and employment – many are skeptical of the idea of being disclosed to, and having their personal information housed in a governmental database of psilocybin users.  These concerns are not merely theoretical. In 2016, the United States Court of Appeals for the Ninth Circuit issued an opinion in the case of Wilson v. Lynch[6] holding that people appearing in a state database of medical marijuana users could be barred from owning a firearm, pursuant to the Gun Control act of 1968, which prohibits individuals who are “an unlawful user of or addicted to any controlled substance” from owning or possessing a gun.  President Biden’s Department of Justice has fought in court to preserve the government’s ability to strip cannabis users of their gun rights, arguing that medical marijuana patients are too “dangerous” to own firearms, and that law-abiding citizens’ rights are not being infringed upon.  Non-US citizens should also be concerned about appearing in the psilocybin database, as anyone with a known connection to Schedule 1 controlled substances can be deported or denied asylum under the immigration laws.  With respect to employment, one of President Biden’s earliest actions as President was to fire numerous White House staffers who were known to have consumed marijuana.  Many other employers, both public and private, have similar “zero tolerance” policies regarding the use of Schedule I controlled substances by employees.

Finally, another proposed Oregon bill, HB 2973,[7] also threatens to impact the legal rights of psilocybin consumers.  In 2020, Oregon voters passed a bill – Measure 110 – decriminalizing the possession of personal-use amounts of various federally illegal drugs, including psilocybin.  HB 2973 would repeal this bill, enabling law enforcement and prosecutors to target and punish people for the personal use and possession of psilocybin and other controlled substances.  The bill would not, however, repeal the laws related to Oregon’s psilocybin services program, and would thus affect only people possessing psilocybin outside the framework of the new licensing system.

Despite these lingering issues, the first state-regulated psilocybin program launched this month, creating many opportunities for individuals and businesses to participate in this one-of-a-kind program. In similar fashion, Colorado voters passed a natural medicine access program in November of 2022, which will create a state-regulated psilocybin (to start) program, but about a year or so behind Oregon. Numerous other states have pending bills and proposals to legalize psilocybin and/or promote research related to psilocybin and other psychedelic substances.  Thus, there are ample reasons to celebrate and to be optimistic that the state-regulated psilocybin access programs will support and productively contribute to the new psychedelics renaissance.

_____________________________________________________________________________________

[1] https://www.justice.gov/usao-mdpa/page/file/1498936/download

[2] Federal courts must consult the Federal Sentencing Guidelines to determine the base offense level(s), then adjust up or down based on numerous other factors, with the highest adjusted offense being level 43. The offense level corresponds with the length of the sentence.; https://guidelines.ussc.gov/de; 2021 Guidelines Manual (ussc.gov)

[3] https://www.ussc.gov/guidelines/2021-guidelines-manual/annotated-2021-chapter-5

[4] A law may violate the Dormant Commerce Clause if it discriminates on its face against interstate commerce. Here, discrimination means differential treatment of in-state and out-of-state economic interests, such that the former benefits and the latter is burdened by such treatment.

[5] https://olis.oregonlegislature.gov/liz/2023R1/Downloads/MeasureDocument/SB303/Introduced

[6] 835 F.3d 1083 (2016)

[7] https://olis.oregonlegislature.gov/liz/2023R1/Measures/Overview/HB2973