Mixing Cannabis and Psychedelics Business

Many cannabis companies are thinking about creative ways to pivot into the developing psychedelics market. One of the questions I hear most frequently hear is whether this is a good idea. It’s one thing for companies to leave cannabis altogether and go full tilt into the psychedelics space. But mixing cannabis and psychedelics into one business presents some unique – and serious – risks. Today I’ll unpack a few.

Before jumping into the post, I should mention that our firm has a separate Psychedelics Law Blog that deals with psychedelics issues. I wrote a piece for that blog titled “Top 10 Lessons from Cannabis for the Future Regulated Psychedelic Industry,” which addresses some of the issues I’ll describe below. This post is not really geared towards businesses operating just in the psychedelics space. Instead, I want to look at some of the ramifications for cannabis companies that want to “double dip” in both spaces.

Cannabis, psychedelics, and banks

A few years ago, most cannabis companies couldn’t get accounts with financial institutions. Thanks to the so-called FinCEN Guidelines, the years’ long evolution of state level regulations, the federal government’s lack of enforcement against cannabis businesses, and heightened risk tolerance for many financial institutions, most cannabis companies have access to some kind of depository account.

This will 100% not be the case for psychedelics companies. There are no FinCEN psychedelic guidelines. In fact, the feds haven’t even taken a clear position one way or another on whether or how they will enforce the Controlled Substances Act (CSA) in states that legalize psilocybin. There is just no way that financial institutions will bank psilocybin funds for the time being. It may take years.

The moral of the story is that if – for example – a cannabis company with a bank account decides to obtain an Oregon psilocybin license next year, it will risk losing its cannabis bank account.

Insuring psychedelics? Think again

Like with banking, access to reputable insurance policies has only relatively recently been possible for cannabis companies. Mixing psilocybin into a cannabis business could risk insurance coverage for the cannabis business. Insurance will likely be available prior to banking for regulated psychedelics businesses, but it’s going to be touch-and-go to start.

Contract violations due to psychedelics

Mixing cannabis and psychedelics also risks landing a cannabis business in breach of third-party contracts. Many contracts contain provisions that require cannabis businesses to comply with laws. It’s fairly common in the cannabis industry to exempt compliance with the CSA only insofar as it relates to state-legal cannabis. But if a cannabis sells psilocybin – even if in full compliance with state law – that could be deemed a breach of such a contract provision. So cannabis businesses considering incorporating psychedelics need to examine every single contract to which they are a party to determine whether they’d be in breach.

What if cannabis business owners invest in psychedelics businesses?

Let’s say a cannabis business opts not to engage in psychedelics activities but one or more of its owners invest in or found a separate psilocybin licensed business in Oregon. Will that pose any risks to a cannabis license of their separate cannabis business? The answer is complicated but it could be “yes.”

Cannabis business owners must be background checked and in many cases can lose a license if they are convicted of certain crimes or are engaged in certain illegal activities. Until we know exactly how the federal government intends to deal with state compliant psychedelics businesses, participating in that industry could expose even individual owners to increased risks of penalties. If those owners are ever charged, let’s say, by the federal government, that could lead to loss of a cannabis business license even if the business itself conducted no psychedelics activities.

If mixing cannabis and psychedelics is a risk, what’s the solution?

The simplest way to avoid some of the risks I’ve mentioned below is to simply avoid double dipping. For entrepreneurs dead set on doing both, we can look to the hemp/marijuana model. Many companies who sell both hemp and marijuana products (at least in places like California with wildly different regulatory schemes) separate the activities into different, commonly owned companies. Sometimes, companies may not even be owned by the same parent.

Separating activities into multiple companies is a good practice in most settings. Here though, it will end up being a critical way to avoid liabilities that can affect cannabis assets from psychedelic risks as the cannabis industry becomes more mainstream.