An Update on Psilocybin’s Legal Status and the Risks of an Unregulated Market

Psilocybin legislation is gaining momentum across the country, particularly on the West Coast. With Washington’s Senate Bill 5660, Oregon’s Measure 109, and California’s Senate Bill 519, all of which are aimed at the medicinal use of psilocybin, there is promise that this compound will be administered alongside their cannabis counterparts. However, unlike cannabis, psilocybin legalization is not stemming from the need to halt a rampant and dangerous underground market. Instead, promotion of psilocybin is coming as a result of evidence from some of America’s top medical research institutions, even from the US Food and Drug Administration (FDA). Despite this, psilocybin is considered a Schedule I substance and is still heavily regulated. Analyzed here are the potential ramifications of having to treat legal psilocybin in the same manner as legal cannabis.

What is Psilocybin?

Psilocybin is a chemical compound found in certain varieties of mushrooms (colloquially referred to as “magic mushrooms”). It is a tryptamine class compound with effects similar to those induced by lysergic acid diethylamide (LSD) and mescaline, the latter of which is isolated from certain species of cacti. For centuries, psilocybin and other naturally occurring hallucinogens had ceremonial purposes, though there has always been concurrent recreational use as well. Much like the highly researched therapeutic benefits of cannabis,psilocybin research has demonstrated numerous benefits in the treatment of a host of diseases, and its growing legislation is aimed specifically at its medicinal uses.

Psilocybin’s Regulatory Outlook

As of now only Oregon’s Measure 109 has passed; Washington and California’s bills will be revisited in the next legislative session. Psilocybin licensing is not slated to begin in Oregon until late 2023, thus no official regulations yet exist, but the regulatory community anticipates taxation and regulations on psilocybin to mirror those currently in place for cannabis. This will put psilocybin business operators in the same position as cannabis operators – having to work mainly in cash, facing limited banking and financing options, maintaining heightened security measures, and dealing with serious crime considerations. Further, regulatory red tape may disenfranchise potential psilocybin business operators and, as in the cannabis arena, trope their preference toward the unregulated market. Fractured regulatory systems are often cited as the top reason many cannabis operators in California remain unregulated.

The potential passing of the SAFE Banking Act creates a much-needed caveat to both the regulated cannabis and psilocybin markets. Legal cannabis is plagued by robberies largely due to the cash-only nature of the business, in addition to the ability to sell cannabis at a tax-free premium in the unregulated market. Psilocybin would likely see similar results and, while an unregulated market certainly exists for this compound, it does not compare to the breadth of the unregulated market for cannabis. It has been extensively studied that prohibition and overt regulation contribute to unregulated markets, a risk that very much exists for psilocybin.

Creating an Effective Legal Psilocybin Program

As demonstrated with both legitimate pharmaceuticals and controlled substances, unregulated markets can form for any compound, and psilocybin is no exception. Regulators would benefit from analyzing the impact of their cannabis laws, particularly their fee structures, and improve on their licensing timelines. Enforcement is also key, thus regulatory authorities should prepare accordingly. Additionally, lawmakers should observe dispensing practices and their correlation to the current epidemic of opioid dependence to ensure the same issue does not occur for medicinal psilocybin use. Finally, public education campaigns should promote the purchasing from, and use of, licensed psilocybin products to ensure safety and consistency. Indeed, the psilocybin regulatory arena is ever changing and will hopefully learn from the errors made in their legal cannabis programs.

How Can Sapphire Risk Help?

Tony Gallo and the team of experts and consultants at Sapphire Risk Advisory Group have worked in the psilocybin market and are familiar with the industry’s unique challenges. Follow us on social media to stay up to date with more psilocybin industry updates!