On 3 November 2020, voters in Oregon passed Measure 109, which legalized the “manufacture, delivery and administration” of psilocybin. The new law allows anyone aged 21 or over to access psilocybin, which will be stored and administered at licensed facilities, for the purposes of “personal development”. This was a historic move, as Oregon became the first US state to legalize the drug.

We have seen remarkable developments in the psilocybin and psychedelic industries, with a range of multi-million dollar psychedelic companies now competing in this field. While entrepreneurs and investors are likely to see Oregon’s Measure 109 as a chance to capitalize on new business opportunities and investments, it’s worth highlighting that this new law is unlikely to lead to a psilocybin gold rush. At least, that’s according to lawyers and investment firms specializing in this area.

For psychedelic companies looking to expand within and to the US following Measure 109, there are some challenges to be aware of.

Jennifer Gumer – a partner at CGL LLP and former attorney at Gibson Dunn and Crutcher specializing in FDA regulations – has been advising an influx of clients who are looking to join the burgeoning psilocybin industry. She has had to emphasize to these clients that the details of Measure 109 mean hopeful entrepreneurs won’t be able to set up shop yet, or at least, not in the way they might ideally like to.

“First, entrepreneurs have to realize that this measure only allows for the operation of psilocybin medical centers, with the ability to open one not being available until January 2023, most likely,” she said. Surviving that two-year period while building a startup could be difficult for some. Since these medical centers will be treating health conditions (such as depression) in a controlled setting, it’s important to note that these centers will be much more costly to set up and run than something like a psilocybin dispensary. 

What this means is that only a subset of entrepreneurs with substantial financial backing will be able to get in on the psilocybin game. But there are other financial disincentives too. Bear in mind that psilocybin is still not legal on a federal level, so any medical psilocybin center that is set up will, as Gumer points out, “face problems getting insurance, will not be able to claim tax deductions and will not have the ability to file bankruptcy should something go wrong”. The federal status of psilocybin also means there a risk of federal enforcement action, as well as a potential difficulty in finding banking.

Measure 109 is starkly different from laws allowing recreational cannabis that are in place in many US states. Oregon’s new law won’t give anyone the ability to set up a psilocybin dispensary like in the way that cannabis is sold. If you want to purchase and use psilocybin, the whole process will be medically supervised, restricted to highly specialized centers.

It took 16 years for cannabis to go from being legalized medically to recreationally,  but Gumer thinks “it might even take longer than that for psilocybin.” Part of the reason could come down to different levels of stigma, with the general public having more worries surrounding psychedelics than cannabis. 

Of course, there’s no getting around the fact that psilocybin has much more powerful effects than cannabis, so this could affect its trajectory of legalization and commercialization. Also, the safety and efficacy of psilocybin depend on the setting in which it is taken, which is why Gumer envisions the drug “only being allowed in supervised settings”. 

Big players in the psychedelic industry like Field Trip Health (FTRP) have been looking to expand in the US, hoping to open health centers in Oregon. In terms of its business model, FTRP health will have to adapt its business model for psilocybin; it won’t be the same as the model for the company’s ketamine clinics in the US. This is because ketamine is an FDA-approved drug (for anesthesia) and a Schedule III substance, whereas psilocybin is Schedule I. 

Ketamine, therefore, is not subject to special regulations like psilocybin is. “FTRP must therefore be prepared to incur much higher compliance costs to comply with the likely onerous Oregon regulations, “ according to Gumer. Nonetheless, Measure 109 is a step in the right direction for companies like FTRP that are looking to implement psilocybin treatment.  

There’s not much that entrepreneurs can do to get around the costs and risks associated with psilocybin, besides simply waiting for a change in federal law. However, patience will be key. When the FDA approves psilocybin as a depression treatment, this would lead to the rescheduling of psilocybin for this FDA-approved use. Clinics that comply with the FDA’s conditions for psliocybin therapy will at least avoid the issue of federal enforcement, although the cost of compliance could still be high.

Pip Deely and Kalika Farmer, two investors in the psychedelic space, are interested in the kind of investment opportunities that Measure 109 will make possible. Deely and Farmer are the cofounders of Delphi VC, an ethically driven investment management firm, which is currently creating a research and development lab for psilocybin-assisted therapy solutions. The two were very hands-on in terms of support for Measure 109, dedicating their time and resources in support of it. They also spoke with a number of psychedelic therapists involved with the bill. 

Farmer expects to see a surge in psilocybin startups soon. And while Deely has echoed some of the logistical challenges highlighted by Gumer, he is hopeful about how regulations surrounding commercial psilocybin will change in the future. He told Psychedelic Invest: “Changes are likely to happen in the US during the first 2-3 years, as Compass takes its clinical trials to phase 3. And the landscape in Canada is changing as it has a very progressive health board.” 

In terms of investors’ hopes and fears about the budding psychedelic industry, Deely has identified two main concerns. The first is ethical: supporting the psychedelic industry in a responsible way, considering the social impact of building companies in this sector. The second challenge is whether or not to engage in opportunities. “Speculation which is so common in the market today is leading to short term gains and many are not sustainable,” Deely says. For this reason, investors are trying to scope out high-quality operators.

For both entrepreneurs and investors, Measure 109 will no doubt help to boost the ever-growing psychedelic industry. Regulatory uncertainty, challenges with selling a Schedule I drug, and a two-year wait before the Oregon Health Authority (OHA) can issue licenses are obstacles worth keeping in mind. Measure 109 won’t change the regulatory landscape in exactly the way that many entrepreneurs and investors want, but it’s a promising start in this era of psilocybin legalization.