Where Should You Turn For Psychedelic Business Advice?

Much like cannabis more than a decade ago, psychedelics as an industry is quite nascent, but poised for growth. By 2033, psychedelics may be an $8.7 billion global industry. Despite slow-rolling decriminalization and legalization efforts in the U.S., opportunities in sectors like research, therapeutic applications, biotech, and non-profit work are emerging. 

A specialized psychedelic attorney’s knowledge is the make-or-break factor in successfully launching and running your business. These experts are few and far between because of the industry’s small size — but that’s what makes getting the right advice from the beginning all the more important. These same attorneys will be your partner at all stages, from licensure to organization structure to regulatory compliance. Here’s how to start your business with a psychedelics attorney on your side—and how else these experts play a key role.

Understanding the Business Potential Of The Psychedelics Industry

The term “psychedelics” covers a range of substances that create altered states of consciousness when consumed. Psilocybin (“shrooms”), ketamine, MDMA, and LSD are among some of the substances that fall under this umbrella.

In the 2020s so far, companies that transform psychedelics into approved, regulated medicines have bought in hundreds of millions in investor dollars. In particular, the notable biotech investment firm RA Capital has invested in three different psychedelic companies during this period. Additionally, some psychedelic companies have gone public, a notion that once seemed thoroughly out of reach. As this is happening, organizations, including the Multidisciplinary Association for Psychedelic Studies (MAPS), are receiving Food and Drug Administration (FDA) approval for psychedelic treatments for conditions like post-traumatic stress disorder (PTSD).

Ketamine in particular has garnered significant interest from mental health professionals and patients. Several notable studies have found ketamine to be effective for helping to treat PTSD, depression, and similar serious mental health issues. The ketamine treatment industry in the U.S. is estimated to be worth $3 billion. 

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The Legal Status Of Psychedelics In The U.S.

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Across the industry, companies focus on launching in Oregon, the first state to legalize a psilocybin marketplace for medical use. Colorado has also created a legal pathway for a psilocybin industry to flourish. In New Mexico, a state court ruling has found that growing fresh psilocybin mushrooms does not qualify as illegal drug “manufacturing.” States including Utah, Texas, and Minnesota are exploring the use of psychedelic treatments in certain healthcare settings. 

In addition to the state-level efforts, several U.S. cities have passed legislation that either decriminalizes or legalizes some kind of psychedelic. For example, psilocybin possession is decriminalized in Washington, D.C. and Portland, Maine. Over the border in Canada, Alberta is the first province to legalize and regulate psychedelics for medical purposes.

Key Questions to Consider Before Starting a Psychedelics Business

Step one in entering the psychedelics business is to hire a psychedelics attorney. To find the right attorney, ask potential candidates:

• How long have you practiced law for? The psychedelics industry is so complex that newer attorneys may not be well-versed enough in its ins and outs.
• What experience do you have with psychedelic law? There’s a world of difference between knowing the laws that apply to the psychedelics industry and having first-hand knowledge of how regulations work. Seek out evidence that the candidate has provided services directly to psychedelic businesses.
• What communication should I expect from you? Choose an attorney who promises regular updates and correspondence. Knowing what your legal representation is working on helps you best understand the intricate, careful steps required for operating a psychedelics venture.

Legal and Regulatory Considerations

Navigating Legal Challenges

As with cannabis businesses, psychedelic businesses are violating federal law since psychedelics are considered scheduled substances under the Controlled Substances Act (CSA). Technically, then, enforcing psychedelic business contracts means enforcing illegal contacts. That said, the cannabis industry has evaded this issue, and the psychedelic industry may too.

In most states, psychedelics lack full legal standing, but that doesn’t stop entrepreneurs as they start a psychedelic business. Long before Delaware, known for its especially friendly conditions for incorporating a business, legalized cannabis in April 2023, cannabis businesses regularly incorporated there with no issue. Psychedelic businesses may well have the same experience. Additionally, in Oregon, psychedelic contracts are explicitly enforceable even as federal legality remains a very faint possibility. 

Compliance

In no state are psychedelic sales quite legal yet. This raises interesting questions around compliance with section 280E of the federal Internal Revenue Code. This section states that businesses selling or “illegally trafficking” Schedule I or Schedule II controlled substances cannot claim tax credits or deductions from any corresponding revenue. Psychedelic-assisted therapy, though, doesn’t necessarily mean that the service provider is buying or selling psychedelics. In that case, the service provider doesn’t need to consider 280E.

Section 280E and the Controlled Substances Act are the most important laws to know for regulatory compliance in psychedelics. Critical legal advice from expert attorneys is the best way to comply with both these federal regulations, or with any state-level regulations that permit psychedelic operations despite federal law banning them.

Taxation and Governance

How your psychedelic business pays taxes and fulfills corporate governance requirements is roughly the same as in other industries. It comes down to the business organization structure you choose. A psychedelic business consultant will almost certainly advise you to choose either an LLC or a C corporation (C-corp).

An LLC is a state-level registration that results in you being taxed as a sole proprietor (meaning your business income is your personal income and vice versa) unless you elect otherwise. It works a bit differently if your LLC chooses to incorporate as a C-corp, which requires that both your business and you yourself pay taxes on your profits.

There aren’t any firm rules for how you govern your business unless you incorporate. If you do, you’ll need to develop and obey bylaws, appoint and manage a board of directors, hold yearly meetings and take complete minute meetings, and file annual reports. A psychedelic attorney well-versed in business taxation can guide you through choosing between an LLC and a C-corp.

Building Your Psychedelic Business's Professional Team

Essential Roles and Expertise

No psychedelic business can go it alone. You’ll need a team of in-house experts and third-party firms and service providers to get off the ground and stay in operation. Given the varying regulations by state and psychedelics’ federal Schedule I classification, psychedelic-savvy legal experts are a must. 

Financial advisors experienced with navigating cash transactions and complex transactions are important too. Since psychedelics are illegal at the federal level, financial institutions and property owners may hesitate to provide services to your business. This decision stems from a fear that they could be charged with aiding and abetting illegal operations. Your trusted psychedelic attorney can help you navigate this situation.

An industry consultant should also be a priority for your psychedelic business team. No matter how much you think you know about psychedelics and where business is starting to boom, there’s always something new emerging. A consultant’s job is, in part, to keep track of these trends and use their extensive knowledge and expertise to advise you on how to seize the moment, whether you’re launching or have already launched. Psychedelic consultants and attorneys make for a masterful combination as you form your team.

Importance of a Law Firm Partner

Most psychedelic attorneys work within a law firm, and that makes a difference. With a full firm on your side, you have several people dedicated to safeguarding your interests and helping you navigate legal hurdles. You also get access to knowledge shared among people with differing experiences and niches, from 208E considerations to psychedelic business strategy to trademarking considerations. 

First Steps to Launching Your Psychedelics Business

Business Plan Development

A business plan is a written document that details your company’s goals and how you’ll turn a profit. It’s vital for seeking outside funding for psychedelic startups, contending with challenges that arise when running any business, and getting potential executives interested in joining your team.

Your psychedelic business plan should contain an executive summary, a company description, and a list of services. There should also be a market analysis, details on your management team, and financial and operational plans. An experienced psychedelic industry consultant can help you develop your plan, and your psychedelic attorney should review the document for compliance, risk, and other legal and regulatory factors. Legal guidance on marketing plans is especially important for remaining compliant with media guidelines and psychedelics law.

Additional Business Documentation

Failing to create and sign documents, including founders’ agreements, shareholder agreements, intellectual property (IP) agreements, and confidentiality or non-disclosure agreements (NDAs), can pose problems down the line. Creating and finalizing these documents in collaboration with a psychedelics attorney ensures that no stone goes unturned.

IP agreements are especially important to get right. They’re how you protect your business name, trademarks, and other assets, maximizing your business’s value. Attorneys who know their way around these complicated documents and the related laws will ensure your marks are protected at every stage of psychedelics’ slowly increasing legality. 

Securing Funding and Licensing 

Unless you plan to bootstrap your psychedelic business, you’ll need extra funding via business loans or investor money. However, given financial institutions’ hesitance to provide services to psychedelic businesses, loans may prove difficult to access. Work with your attorney to maximize your business’s appeal to potential investors. Pursuing funding via venture capital, angel investors, or other alternatives may be your best bet, at least initially.

Licensing will likely prove trickier since regulations vary so much by state. In Illinois, for example, a House bill may eventually establish psilocybin services, and if this happens, licensure for your service may become possible. The question becomes what licenses you must obtain and any challenges that may come with doing so, as compared with businesses whose services have always been legal. Those aren’t questions that can be answered yet, but you will need to take them into account if and when they do come up. Consult with your psychedelic law firm to identify your licensing requirements and any other steps you must take to make your business official. 

Coming Up With a Business Name

A great business name instantly tells someone what you do and makes them curious about how you do it. Not every name you think of will be available, and your attorney will know how to check. Trademarks and other registered branding marks prevent already-taken names from being used elsewhere, and trademark attorneys are experts in navigating this tricky landscape. From identifying which names are available to registering your own marks for the name you choose, a trusted psychedelic attorney is a must when you take this step to start your business.

Registering Your Business

Lots of paperwork and state-specific processes come into play when registering your business, and attorneys specialize in checking every box. Your psychedelics attorney will ensure that your choice of organizational structure, business name, and other essentials are properly registered with the appropriate agencies. Once that’s done, you’re officially ready to begin operating. 

Supporting psychedelic business clients at Rudick Law Group

Expert knowledge isn’t a nice-to-have when navigating the psychedelics industry—it’s a must. Attorneys with expertise in psychedelics law provide you with indispensable guidance as you navigate the challenges of an industry that’s federally illegal, and only legal in some ways in some states. They know psychedelics regulations, best practices for drafting legal agreements, and business registration must-haves like the back of their hands.

Hiring an attorney who knows their way around the psychedelics industry matters for protecting your assets, growing your business in legally compliant ways, and ensuring effective operations from day one. Delegating your legal needs to someone who knows standard regulatory or tax law, but not the psychedelics context, is a recipe for disaster. Don’t learn the hard way—choose a specialized psychedelics lawyer from the get-go.

Here at Rudick Law Group, we’ve navigated psychedelic startup challenges via our regulatory compliance, licensing, investment, finance, advocacy, and policy reform services. Contact our psychedelics attorneys to discover how we can help you launch, run, and protect your business with a customized, comprehensive legal strategy that covers all your bases.