Shadow Banning Psilocybin Businesses: Local Governments May Rely on Development Code To Deny Permitting

As we previously covered, Oregon counties and cities are currently considering whether to opt-out of Measure 109 and ban psilocybin manufacturers and service centers within their jurisdiction. Local governments automatically enroll into the Measure 109 program unless they refer an opt-out ordinance for approval to local voters in the upcoming November election. City and county governments may also refer ordinances with a sunset clause that essentially act as a temporary moratorium on psilocybin businesses to provide local governments the opportunity to develop time, place, and manner (TPM) restrictions.

In researching which local governments in Oregon are planning to refer opt-out ordinances to voters, we discovered another avenue local governments may use to prohibit psilocybin businesses in their area. Dallas, Oregon, is currently considering referring an opt-out ordinance to their voters and a staff report discussing the matter explains that the city could either refer a full opt-out ordinance to voters, refer a moratorium ordinance with a sunset clause, or:

A third and final option is to do nothing. If the Dallas Council elects this third option, city staff will rely on our development code provision requiring businesses to comply with federal, state and local laws. Since psilocybin is currently a schedule I drug, the city’s development code language would not allow us to permit psilocybin uses.

For those unfamiliar with land use law, development codes are promulgated by local governments to create zoning districts that determine what type of buildings and uses are allowed within a given area. A simple example is a city can ban construction of commercial buildings in areas zoned “residential,” and relegate construction of those buildings to other areas of the city that are reserved for commercial activity.

Dallas currently relies on its development code to outright deny permitting of marijuana businesses in the city, and the practice seems effective as there are currently no dispensaries in the town. The staff report prepared for the Dallas city council does note that legal challenges may arise should the city rely solely on its development code to prohibit psilocybin facilities. It is hard to predict the chance of success in challenging such a practice in court, but regardless, the possibility of local government using development codes in this fashion presents an additional barrier to opening psilocybin businesses in some parts of Oregon.

Accordingly, businesses should remain apprised of the development code in any jurisdiction they are thinking of purchasing real estate in to ensure there are no general prohibitions against issuing permits to business acting out of compliance with federal law. While it is unsettled whether local governments can rely on their development code in this way, it is another factor to consider in addition to the still unknown TPM restrictions that local governments will institute.

The Oregon Health Authority is expected to begin rulemaking on TPM regulations this September, and we will keep readers apprised of those regulations and any developments in the meantime that may affect your psilocybin business and real estate decisions.

Contact Brett Mulligan at [email protected] or (503) 488-5424.

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