Starting a Psilocybin Business: Write It Down

It’s important for a psilocybin business to operate with written agreements, well ahead of licensure. This post explains why.

Statutes and common law are “one size fits all”

In Oregon, as in all 50 states, companies are subject to statutes that govern their members, managers, shareholders, directors and officers. The statutes are back-filled by common law. This general apparatus covers a host of basic items: e.g., how a company is formed; how it is dissolved administratively or judicially; which duties an owner owes the company and any co-owners; distributions and dividends; indemnities; etc.

Sometimes, people are surprised to learn about default rules that give all members equal management rights in an LLC, for example, or require unanimity for certain key actions. The default rules almost never cover issues unique to the company, like ownership percentages or contributions of capital, to name just a few.

Lack of documentation is otherwise dangerous

Whenever two or more parties own a business, lack of basic documentation is dangerous. This will especially be true for licensed, Oregon psilocybin businesses. People inevitably develop their own ideas as to “what the deal was.” When disputes happen, there may be nothing to fall back on but text and email fragments, or fuzzy recollections of who said what, and when. No governing framework; no clear way out.

There are several reasons parties ultimately fail to execute company documents, but here are the big three:

  1. It’s an expense. Resources may be limited at the start of a business venture, and the parties feel that company documents can be negotiated at some later date.
  2. It’s confusing. People may not understand basic concepts like capital account protocol, member withdrawal, drag- or tag-along rights, or any number of standard entity considerations.
  3. It’s uncomfortable. People may be averse to negotiating “against” their partners, particularly at the outset of a business venture. Or people may just feel nervous signing a formal agreement, despite the fact that they are running a business.

None of these reasons are good, and spending some time and money at the outset of a business venture will almost always pay off in the end. Marshalling company documents does not necessarily need to be a great expense: many psilocybin companies will be (and should be) lightly structured, though others will opt for complex tiers of ownership and highly nuanced management. Still, parties can often agree to basic documents without each hiring their own attorney or becoming mired in intractable negotiation.

unique issues

We can help you

A skilled business attorney who is familiar with the evolving OHA rules and federal controlled substances law, will be able to walk the parties through the early steps of entity formation. That attorney can help explain unfamiliar terms and facilitate conversation.

Oregon is set to adopt unique ownership rules on psilocybin business ownership and licensing. Those concepts must be addressed in company governance documents, along with implications of federal illegality on company structure up front.

If you are operating without ownership agreements in your psilocybin business, you are courting risk and conflict. And if your ownership or structure has changed since the time you first put ink to paper, it’s time to dust them off and have a look.