Over the past few years, the conversation surrounding recreational and medical use of psilocybin has shifted due to growing evidence of its significant mental health benefits. This newfound social acceptance of psilocybin has led to significant advancements in local and state law and policy.
Read on for an overview of current federal, state and local regulation of psilocybin and a look at what may lie ahead.
Regulating Psilocybin at the Federal Level
In 1970, psilocybin, the active hallucinogenic chemical in mushrooms, was listed as a Schedule I substance under the Controlled Substances Act by the U.S. Drug Enforcement Administration. Schedule I substances carry a high potential for abuse, have no accepted medical use in the United States and cannot be safely administered under medical supervision. Also listed as Schedule I drugs are heroin, lysergic acid diethylamide (LSD), phencyclidine (PCP), marijuana and ecstasy.
Despite federal restrictions, certain states and municipalities outlined below recently passed legislation that either decriminalizes or legalizes recreational psychedelic mushroom usage. Unsurprisingly, the trends surrounding psilocybin closely resemble state recreational marijuana legalization efforts that began in 2012 with Colorado and Washington. Although 21 states have now legalized recreational marijuana, marijuana remains a Schedule I substance and therefore illegal at the federal level. Analogously, it is unlikely that the federal government will change its stance on psilocybin legalization anytime soon.
Notwithstanding these barriers to the decriminalization and legalization of psilocybin, the U.S. Food and Drug Administration (FDA) recently approved clinical trials that investigate psilocybin’s potential to treat anxiety, depression, post-traumatic stress disorder and other health issues. Clinical trials are a preliminary step for pharmaceutical manufacturers to gain FDA approval for a new drug therapy. Reports estimate that the psychedelic drug market has a compound annual growth rate of 13.3% and will be valued at over $6.8 billion by 2027. With the pharmaceutical industry investing billions in psilocybin research and state and local psilocybin legislation on the rise, the industry is booming, regardless of psilocybin’s Schedule I status.
Regulating Psilocybin at the State Level
Two states have legalized the use of psilocybin — Oregon and Colorado, both through ballot measures passed by state residents.
In 2020, Oregon became the first state to decriminalize and legalize psilocybin for therapeutic use for those 21 and older through Ballot Measure 109, now codified as ORS 475A. Despite its legalization in 2020, Oregon did not begin accepting applications for licensure until Jan. 2, 2023.
Colorado’s Nov. 8, 2022, Proposition 122 decriminalized both the possession of psychedelic mushrooms and the use, but not sale, for persons 21 years of age and older. Proposition 122 was signed into law as Senate Bill 290 by Gov. Jared Polis on May 23, 2023. Psilocybin will be legal for use at Colorado-licensed facilities starting in 2024.
The Colorado ballot measure, unlike Oregon, also provides a path forward for the state to legalize psychedelics other than psilocybin, including psilocyn, dimethyltryptamine, ibogaine and mescaline. This underscores a broader movement toward the legalization of various psychedelics for the clinical treatment of depression and other mental health needs. Oregon and Colorado are known for poor mental health records, ranking 44 and 43, respectively, for overall mental health metrics, according to a study by Mental Health America.
Since the federal government lists psilocybin as a Schedule 1 substance with “no currently accepted medical use,” it will not be covered by insurance in either state. That has not stopped the FDA from approving psilocybin clinical trials, however. In 2018, Compass Pathways received FDA Breakthrough Therapy designation for psilocybin to treat treatment-resistant depression. The Johns Hopkins Center for Psychedelic and Consciousness Research is exploring ways that psilocybin can be used in clinical treatment for major depressive disorder, and is backed by $17 million in funding. Additionally, investors have started to focus on the potential uses and benefits of psychedelic substances such as psilocybin, and other states continue to introduce ballot initiatives and fund research into psilocybin.
Regulating Psilocybin at the Local Level
The scientifically supported health benefits of psilocybin, accompanied by a significant growth in general social acceptance, has caused lawmakers at the municipal level to reevaluate and reform existing laws that have, since the 1970s, placed heavy sanctions on the use of psilocybin. Since 2020, several cities across the United States have made efforts to decriminalize psilocybin, through ballot initiatives or through city council votes. As a result, most decriminalization initiatives are happening at the local level, allowing for greater social impact by organizations such as Decriminalize Nature, whose mission is to expand access to the benefits derived from psilocybin and other entheogenic plants and fungi.
In May 2019, Denver, Colorado, became the first U.S. city to decriminalize “the use and possession of mushrooms containing the psychedelic compound psilocybin” by persons 21 years of age and older through Initiated Ordinance 301. It did not take long for other cities to follow suit; as of January 2023, the movement toward decriminalization of psilocybin has grown, with multiple municipalities across several U.S. states either decriminalizing the compound or lowering its priority for law enforcement officers. Specifically, select municipalities in Washington state, California, Michigan, Massachusetts and the District of Columbia are leading the way in decriminalization efforts. Many of these efforts have been successful, in large part due to the emergence of studies consistently finding health benefits associated with psilocybin use.
The Future of Psychedelics
Although there is a long way to go before substances like psilocybin are legalized, the movement across the country toward decriminalizing these substances is gaining momentum. Perhaps most crucially, the significance and potential implications of this movement expand far beyond just the decriminalization of psilocybin as many believe (and hope) in terms of cures. These new developments might catalyze reclassification or declassification of other Schedule I substances (e.g., marijuana).
The opportunity for investors comfortable with high-risk and high-reward investments will continue to grow in coming years, with plenty of room at a table— $6.8 billion of projected investment opportunity in just four short years.
McGuireWoods attorneys are experienced in representing and advising investors on investments in the pharmaceutical industry. If you have questions about the decriminalization and legalization of psilocybin and other psychedelics, including marijuana, or navigating investments in psychedelics, please contact one of the authors of this article.