Partner Jeff Zuber, Counsel Raza Lawrence, and Associate Lizzie Fanckboner.
Psilocybin, the active ingredient in magic mushrooms, has been the subject of increasing scientific research in recent years. Its potential therapeutic benefits for a variety of mental health conditions, such as depression and anxiety, have led to a growing movement to legalize and regulate its use. One state that has taken a particularly progressive stance on this issue is Oregon, which has recently passed legislation allowing for the licensed production, possession, and use of psilocybin. A key aspect of this legislation is the state residency requirement for license applications.
The Oregon Psilocybin Services Act, which was passed in November 2020, allows for the creation of licensed psilocybin service centers and the possession and use of psilocybin by individuals over the age of 21 at those service centers. The Act also establishes a regulatory framework for the production and distribution of psilocybin. Under the Act, until 2025, the State will issue psilocybin service center and manufacturer licenses only to applicants who are either (a) a person who has been an Oregon resident for at least two years, or (b) a legal entity that is majority-owned by one or more individuals who have been Oregon residents for at least two years. Likewise, until 2025, the State will issue psilocybin service facilitator licenses only to individuals who have resided in Oregon for at least two years.
One rationale behind this residency requirement is that it ensures that the individuals and organizations involved in the production and distribution of psilocybin are accountable to the state and its residents. It also seeks to prevent out-of-state actors from coming into Oregon and profiting off of the legalization of psilocybin without contributing to the state’s economy or community. Additionally, the residency requirement is designed to increase the likelihood that the individuals and organizations involved in the psilocybin industry are familiar with the state’s laws and regulations, and have a vested interest in following them.
This residency requirement, however, also has some potential drawbacks. For example, it may limit the pool of applicants for licenses, which could in turn limit the availability of psilocybin to Oregon residents statewide, or in certain areas of the state. It limits the ability of some people who have the most knowledge and experience regarding psilocybin to participate in the program. It also explicitly discriminates against non-Oregon residents, which could violate the dormant commerce clause of the United States Constitution.
There are ways that non-Oregon residents may meaningfully participate in the psilocybin program, despite the residency requirement. First, non-Oregon residents are currently allowed to own less than 50% of a licensed psilocybin service center or manufacturer business, and given that the Act lifts the residency requirement beginning January 1, 2025, non-residents may enter into contracts now providing them with the right to acquire a majority interest in or sole ownership of these businesses as soon as the residency requirement ends. Non-residents are also currently allowed to manage psilocybin service center or manufacturer businesses that are majority-owned by residents and may receive incentive-based compensation for the management services, including as a percentage of revenues. Through both contracts to acquire majority ownership and management agreements, non-residents have great flexibility to participate in the licensed psilocybin industry and to have a substantial economic stake in the industry. Accordingly, people from outside Oregon should not be dissuaded from participating in Oregon’s first-in-the-nation psilocybin licensing program, but should keep in mind that they will need to work together with an Oregon resident in some capacity in order to establish a licensed business.