Oregon Psilocybin: Business Issues, Part 3

Welcome to the third installment of this series surveying business and regulatory issues in the Oregon psilocybin program. Today I’ll cover real estate, insurance and employment issues.

Real estate issues for Oregon psilocybin businesses

Real estate is one of the areas where psilocybin will be fairly analogous to cannabis, with some wrinkles.

Leasing property for psilocybin businesses

My expectation is that most licensed psilocybin businesses will lease real property, rather than purchase. Assuming the business finds a location that works under Oregon Health Authority (OHA) rules and relevant local code, a second threshold issue will be finding a landlord willing to lease to a “trafficker” in federally controlled substances.

Psilocybin landlords will have far less cover than cannabis landlords enjoy, now or at any time in recent memory. Cannabis landlords historically had the Cole Memo to reference, which signaled prosecutorial restraint again the industry and its adjuncts. By the time the Cole Memo was rescinded, the industry was so large nationwide that federal enforcement seemed very unlikely.

The Oregon psilocybin program will be small but enterprising, to start. I doubt we will get any memoranda on federal enforcement this time around; and I doubt we will get local U.S. attorney guidance, either, as we did with the Williams Memo here in Oregon. In all, a psilocybin landlord will have objectively greater prosecutorial risk than a cannabis landlord— even if that risk is still relatively small.

The model with psilocybin service centers, in particular, will differ greatly from cannabis retail. In cannabis retail, on-site consumption is strictly prohibited, whereas in psilocybin service centers you cannot take it with you: people are dosing on site. Not only is a landlord providing a venue for the sale of federally controlled substances; the landlord is also providing a venue for tripping and trip-sitting. This raises novel premises liability and insurance coverage issues.

Another big issue for psilocybin landlords and tenants will be the mortgage status of the property. Generally speaking, bank loans (and most other real property loans) will be instantly callable the moment a psilocybin tenant begins operations. I explained how this works here. It’s also not out of the question that a handful of psilocybin landlords will become RICO targets, or lose their bank accounts. We saw that happen with cannabis.

As far as actual paperwork, psilocybin leases will be similar to cannabis leases. This is not an area for online forms. Anyone who uses a generic form lease for a psilocybin premises is asking for trouble.

Buying property for Oregon psilocybin businesses

With cannabis real property, we’ve papered some cash sales and a lot of seller financing over the years. Bank loans are out. All of that will be the same with psilocybin.

We will have the same headaches with title insurance in psilocybin real estate transactions, and buyers and sellers will have to enlist third parties service providers (attorneys; realtors) on escrow. Without title insurance in many cases, though, the parties will have to negotiate risk allocation via contract, unless the idea is to try to run things under the title company’s radar. But that is not advised.

Insurance issues for Oregon psilocybin businesses

I’m optimistic about insurance. We have been talking with a couple of brokers already. The forecast here is that property and casualty policies will likely be underwritten and available. This means the general liability coverage policies that most small, licensed psilocybin businesses will want should be on offer.

More uncertainty exists with other lines of coverage. I’m told directors and officers policies, as well as product insurance, could be harder. In all categories, it comes down to whether the underwriters themselves can find enough reinsurance to get comfortable wading in.

Court enforcement of psilocybin insurance contracts is an open question. We recently explained how the courts have split on enforcing cannabis insurance contracts in the event of coverage denial. Fortunately, I’m not aware of any bad decisions in the State of Oregon or the Ninth Circuit. From our experience working with cannabis clients making claims, insurers also have been reasonable at paying to begin with. Or, no different than in any other context.

Employment issues for psilocybin businesses

One thing people tend to misapprehend about the Oregon psilocybin program is that Measure 109 legalized psilocybin therapy. It really didn’t. As our own Mason Marks has explained, Measure 109 simply legalized supported adult use, or what I keep calling “trip-sitting” backed by licensed manufacturers. Really, it’s a recreational use set up, even if people wish to dose for other reasons.

So what does this mean for employment? It means that a licensed psilocybin service center need not be staffed by doctors, or nurses, or “medical” personnel of any kind really. And because of that, there are no complex corporate practice of medicine restrictions on ownership; nor are there requirements to hire board-certified practitioners to run a service center. The only employment-related stricture will be an OHA rule that licensed “psilocybin service facilitators” must oversee client administration and integration sessions. These facilitators need no more than a “high school diploma or equivalent education” per Measure 109, in order to be trained and certified. They also need to be two-year Oregon residents, until that requirement sunsets in 2025.

Other employment-related issues will exist, of course, specific to the industry. In an earlier post, I mentioned how psilocybin company employees could have difficulty getting personal mortgages, or even getting banked. Also, because of the simple fact that service centers are places where psychedelic drugs exist, clients dose, and lots of cash is lying around, businesses will want to develop refined employment policies on all things related to these environs.

Stay tuned for Part 4 of this series next week. In the meantime, check out the following: