Twenty-five years after Colorado legalized medical cannabis and a decade since greenlighting adult-use sales, the Centennial State made history again as one of the first to legalize psychedelics. The passage of the Natural Medicine Regulation and Legalization bill in May 2023, however, created more questions than answers—first and foremost, what the emerging legal psychedelics industry will look like and how it will be regulated.
Anyone who followed the ups and downs of the so-called “’shroom boom” that’s been driving psychedelics investment and research in recent years may also be wondering how to get on board. Frequently asked questions include whether entrepreneurs will be able to hold both cannabis and psychedelics licenses.
Another question is whether medical cannabis founders will have an advantage in what looks to be a highly medicalized market for psilocybin and other “natural medicines” pending regulatory approval: dimethyltryptamine (DMT), ibogaine, and non-peyote-derived mescaline.
As an attorney who has represented cannabis businesses since 2014, I predict most of the current questions about the nascent psychedelics industry share a common answer: Natural medicines will be regulated much like the Colorado medical cannabis market. The Centennial State’s medical roots offer a vital legal structure not only in Colorado but also eventually in other state and national markets.
Oregon is also an early leader in the legal psychedelics space — the first state to legalize therapeutic psilocybin in 2020, with the first licensed psilocybin clinic opening three years later. In the Beaver State, as in Colorado and other states like California that are contemplating opening a legalized psychedelics market, cannabis is the closest analog to psychedelics to which regulators and legislators can refer.
The modeling of a new market on its closest predecessor is already tried and true. After all, the Colorado medical cannabis market certainly didn’t materialize from thin air. Rather, Colorado’s policies were modeled, partially, on existing regulations for other highly regulated product categories like tobacco and alcohol, as well as traditional agriculture. Meanwhile, other states like Wyoming and Texas have tiptoed into medical cannabis with restrictive laws on THC content and permitted product formats.
This paradigm stems not only from decades of anti-cannabis messaging but also from reasonable public health concerns that naturally exist in a relative information and research vacuum. Similarly, psychedelics represent a great unknown.
Although significant research was conducted in the middle of the past century, scientists only recently began exploring new hypotheses that will inform the way these psychoactive, hallucinogenic, and dissociative substances affect both people and public life. Practically speaking, psychedelics affect people in significantly different ways from cannabis — or alcohol or tobacco, for that matter — and we’re still trying to understand what those ways are.
That’s a fact that any future regulations must acknowledge and inform the strong consensus for a clinical, rather than retail, approach to legal psychedelic sales and consumption. Indeed, Colorado’s psychedelics law specifically refers to “healing centers” in addition to cultivators, manufacturers, and testers as examples of “natural medicine businesses.”
On their face, healing centers do feel meaningfully different for consumers from, say, a magic mushroom dispensary where someone can go pick up a few caps before a music festival. Behind the public-facing retail fronts, however, the regulatory structure for legal psychedelics likely will have more in common with the legal structure for medical cannabis — in particular, restrictive state programs that allow only low THC/high CBD extracts, for example.
The legalized psychedelics industry will begin with strict, narrowly defined and enforced regulations and small-scale operations. From that foundation, the market will expand in step with public sentiment and legislative familiarity. Possibly, the market one day may include integration with existing healthcare facilities or nonclinical retail models.
Before that expansion, however, psilocybin businesses likely will encounter some of the same challenges and regulatory realities cannabis companies have experienced—both at the state level and under the federal Controlled Substances Act. Compliance metrics for corporate governance structures and zoning restrictions, for instance, likely will be informed by existing cannabis regulations because of federal scheduling and to reduce the exposure of minors to psychedelic substances or advertising.
The federal stance on psychedelics also will influence banking restrictions much as it has with cannabis, including impacts on the accessibility of financing and investment capital, payroll processing, insurance policies, and other operational necessities. Colorado’s law also made clear, at least for the time being, Internal Revenue Code Section 280E will affect the nascent legal psychedelics market exactly as it has the cannabis industry, forbidding the deduction of business expenses that are standard in other sectors.
In fact, the Natural Medicine Regulation and Legalization bill summary states, “Under federal law, certain expenses are disallowed under section 280E of the Internal Revenue Code. Under state law, the state income tax code permits taxpayers who are licensed under the Colorado Marijuana Code to subtract expenses that are disallowed by section 280E of the Internal Revenue Code.”
As anyone who has ever filled out a cannabis license application knows, legal psychedelics aren’t the only path to ego death. That’s one reason, of many, entrepreneurs in this new sector likely will come from the cannabis industry—or at least look to cannabis operators for guidance on how to navigate the emerging psychedelics regulatory framework. Professionals with experience in cannabis are poised to leverage their knowledge to anticipate and address regulatory challenges in the psychedelics sector.
An attorney specializing in cannabis law, licensing, and regulatory compliance as well as general corporate and business law, Alyson Jaen is of counsel in Messner Reeves LLP’s Denver office. She was named to Best Lawyers’ “Ones to Watch” list for 2025. Messner.com
