Colorado’s Natural Medicine Health Act (“Proposition 122”) was signed into law in May 2023, creating exciting opportunities for those looking to set up businesses in the emerging psychedelics sector in the state.
Researchers, entrepreneurs, investors, clinicians and manufacturers are all expected to apply for licenses for new psychedelics businesses.
But the opportunities do not come without great risks. The rest of the country is watching to see what happens with psychedelics in Colorado. Consequently, the industry will be highly regulated and those hoping for a business license will need to pass considerable hurdles before they can open for business.
Being able to turn to a trusted partner to navigate the legal and administrative hurdles can help you de-risk the process of securing a psychedelics business license and get set up properly from the beginning.
According to Colorado’s Natural Medicine Health Act, opportunities exist for entrepreneurs, health practitioners and investors to open businesses in four key areas:
Open and operate healing centers where psychedelics are used to treat patients
Cultivate natural psychedelics for use in healing centers
Manufacture products for use in healing centers
Open and operate testing facilities for psychedelic products
Regardless of the type of Colorado psychedelics business you intend to start, you’ll first need a license that covers you for your intended business activities.
Once you secure a license, your business will be qualified to operate in the specific sector of the industry to which your license relates.
What type of psychedelics business licenses are there in Colorado?
Under the Act, the Natural Medicine Advisory Board is responsible for regulatory oversight in the emerging industry.
The natural medicines covered by the Act include:
Mescaline (excluding peyote)
The Advisory Board will make its recommendations by September 30th, 2024 and licensed healing centers are expected to be able to offer psilocybin by the end of the year.
Working alongside Colorado’s Department of Regulatory Agencies (“DORA”), 15 experts in various fields related to psychedelics will create a comprehensive framework for businesses to follow.
The psychedelics business licenses available in Colorado will fall into five main categories:
Facilitator license: a license for individuals to provide natural medicine services with preparation, administration, and/or integrative sessions for participants (operating from licensed healing centers, as outlined in the next category).
Healing center license: an entity license allowing establishments to acquire, possess, cultivate, manufacture, deliver, transfer, transport, supply, sell or dispense natural medicine and related supplies.
Cultivation facility license: this allows the cultivation of regulated natural medicine for transfer and distribution to healing center licensees, product manufacturers or other cultivation facility licensees.
Products manufacturer license: this allows the manufacture of regulated natural medicine products and cultivation pursuant to a cultivation facility licensee.
Testing laboratory license: a license to conduct independent testing and research of natural medicine for concentration and contaminants to ensure all products are safe for human consumption.
It should be noted that the Act authorizes the issuance of any additional natural medicine business license as determined necessary by DORA.
Who can apply for a psychedelics business license?
The qualifications and procedures for obtaining licensure for aspiring Colorado psychedelics businesses have been developed by the Advisory Board since May 2023.
Any application for a Colorado psilocybin business license requires that the applicant provides documentation to address the following:
Environmental, social, and governance criteria
Refusal of service
Advertising and marketing standards
Health and safety warnings
Record keeping, including session completions
Patient data privacy
Permissible financial relationships between licensees and other entities, and
Further requirements as determined.
Applicants must also demonstrate how they will establish their business in the proposed premises (by ownership, lease, rental agreement or other arrangement).
License applications require a significant amount of supporting documentation that can be challenging to provide to the satisfaction of regulators without fully understanding their requirements.
Social equity and preferred applicant status
When awarding cannabis business licenses, many state authorities have placed a strong emphasis on social equity because of the disproportionately high involvement of low-income communities and the potential for exploitation and misappropriation of indigenous peoples.
With psilocybin and other natural medicines, the same applies even though the connections are not quite as strong as with cannabis.
Preference will also be given to individuals who are residents of Colorado.
Why do you need a psychedelics business lawyer?
Colorado is the first state to legalize certain psychedelic substances. Other cities and states that have relaxed some regulations are watching closely to see what happens next in Colorado.
Because of the tight regulations that will be in place, the process for obtaining these licenses is stringent. With high startup costs for many types of psychedelics businesses, there are substantial risks involved.
Our skilled psychedelics business license attorneys can help you prepare your licensing application and navigate the complex compliance regulations and legal hurdles during the crucial startup phase.
Apply for a psychedelics business license in Colorado
Locating the necessary legal expertise to secure a psychedelics license and start your business on the right track can be challenging because it’s such a new area of law.
We’ve helped many businesses across multiple states meet the challenging requirements of obtaining cannabis business licenses and have been paying close attention to the recent changes in psychedelics laws.
We’re well qualified to help you with the competitive and rigorous license acquisition process. By helping you meet the stringent regulations, we can save you time, money and headaches.
Whether your intended business is in research, development, commercialization or medical practice, our psychedelics business attorneys can help you obtain the business license you need.
Call 866-329-0729 for a consultation with a knowledgeable psychedelics attorney at Cannabis Law Solutions.
How will our cannabis and psychedelic business services help you
Cannabis & psychedelics business entity formation
Whether you are looking to form a limited liability company (LLC) or a corporation, our experienced business lawyers can discuss the pros and cons of both and help you incorporate your business with the optimal structure to achieve your goals.
Cannabis & psychedelics business licenses
If you want to run a cannabis or psychedelics business, you will need a valid business license issued by your state authority as well as local permits. Eligibility criteria are likely to be stringent and we can help you navigate the often-complex license application process.
Cannabis & psychedelics corporate documentation
Whether you need to prepare for a license application, transfer of business ownership, change of corporate structure, transfer business location or another business process, we can help you identify and draft the documentation you need to operate legally in your state.
Cannabis & psychedelics administrative law
State authorities watch licensed and unlicensed cannabis and psychedelics businesses closely. If you violate regulations, you could face an administrative penalty. Our attorneys can provide representation or help you prepare for an administrative hearing, settlement conference or appeal.
Cannabis & psychedelics disputes and litigation
Whether you have a dispute with another business, a legal issue with one of your partners or a licensing or administrative issue, you may need legal assistance to help resolve it. We are adept at alternative dispute resolution methods as well as civil litigation.
Cannabis & psychedelics regulatory compliance
As the cannabis and psychedelics industries emerge in states around the U.S., they are more heavily regulated than most other industries. We can help your business navigate the red tape and plan to stay on the right side of the regulatory authorities in whichever state you are based.
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Opening a successful and legal marijuana dispensary begins with hiring a knowledgeable cannabis attorney and learning all that you can about this industry and the applicable laws. The next step is to set up a corporate business structure and create a retail business plan, which an attorney can also help you with. You will also need to research potential locations for your business to find out where licensing is legal.
Next, obtain the necessary licensing to operate your cannabis business and ensure that your operational infrastructure follows all laws and regulations. If you are not growing or producing your products yourself, you will need to contract with cultivators and product manufacturers to supply your business.
Before you begin the process of applying for a cannabis license, you need to establish a business from which to apply. The state will not consider an application from an individual; instead, the applicant must be a business entity in good standing with the state.
Your business will begin when you choose a legal entity and file the appropriate paperwork with the Secretary of State. After that, you will file with the IRS and obtain a taxpayer identification number.
You would start with articles of incorporation and include other key corporate provisions in the bylaws that state how your company will be governed. If your business is a partnership or limited liability company, you will need an operating agreement. Depending on your line of business, you may also need other licenses to operate.
In addition, you will also need other corporate documents that the Department of Health will want to see when they are considering your cannabis application. Of importance here, your application would ask you to provide:
Your articles of incorporation
Certificate of good standing
An attorney can help you both choose the appropriate business entity and draft and file any necessary documentation. When you are seeking to enter the cannabis field, it is important to get your business formation process right to make the best possible impression on the Department of Health. Doing so will allow you to devote as much time as possible to your cannabis-related business arrangements.
As a precursor to even being able to apply for state approval of your cannabis business, you must have a properly formed business entity. As a result, the first documentation you must file is the documentation establishing your business.
Next, you will need to obtain a tax identification number by registering with the IRS. In addition, the licensing application also asks you to provide your current state business license registration.
Beyond your general business licenses, you would also need specific permission to operate a cannabis business. This involves a very strict registration process where the state will closely scrutinize your application. You can expect the state to review each of the licenses that they request since it wants to be sure that your business complies with laws before they are granted the right to operate in the cannabis industry.
Compliance means making sure that you follow the myriad of laws that apply to your state’s cannabis businesses. Further, the regulatory landscape is fast-changing as the state gains more experience overseeing the businesses.
What this means for you is that knowledge is one of the most important things that you can have. Not only do you need an expert in the current laws, but you also need to be able to anticipate future changes in the law. This means that each business needs an expert who understands the laws and can advise them as to the best means of following them.
Also, compliance also means that you have sound policies and procedures in place that govern your business. The Department of Health is already looking at your policies when they evaluate your initial application. However, they reserve the right to audit and inspect your business to verify that you are complying with the law. You should always be ready for an inspection by documenting how you are following the regulations.
The best way to show compliance is by keeping your paperwork organized and conducting your own internal audits. The Department is interested primarily in your safety procedures, so you should be ready to show how you are following your own procedures. Further, you should always reevaluate your own policies to see if there are any weaknesses or changes that can be made to strengthen them.
The major thing that the Department of Health is interested in is the safety of both the product and the operation. As a baseline, the state wants to know who all of the owners are and the people who will be working in the operation.
While there are common documents among all the application classes that the Department is seeking, there are also special requirements for each of the categories.
For example, when the Department is evaluating a manufacturing application, it will pay close attention to measures that your business takes to ensure proper hygiene and testing methods. The Department also will pay attention to the manufacturer’s procurement practice and the security of its inventory.
With regard to laboratory submissions, the focus is partially on the testing processes and equipment that the business will use. The Department wants technical, scientific details of the exact tests and the quality control that the laboratory will use for testing. The emphasis is on ensuring product safety.
For courier businesses, the Department will scrutinize the safety and security of the delivery process, including the vehicles and the delivery routes that are used. The emphasis is on the safety of qualified patients, primary caregivers, and courier staff in light of the product being delivered. In addition, since there is interaction with patients, the Department wants to see how the applicant plans on protecting patient privacy.
Cannabis legalization often works in a series of steps. Broadly speaking, cannabis policy reform occurs in the following stages:
Prohibition: Criminal penalties apply for the possession or use of cannabis.
Decriminalization: Low-level criminal penalties are removed for cannabis usage (e.g., personal possession) and criminal penalties may be replaced with civil fines.
Medical legalization: Full medical legalization with commercial licensing and testing may come straight away or in a series of stages.
Legalization: State laws are changed to make any cannabis activity a crime no longer. Cannabis must be removed from the Controlled Substances Act and new rules added for the legal commercial cultivation, distribution, testing, and sales of cannabis.
Oregon and Colorado states have decriminalized the use, sale, and possession of psilocybin, which is the active ingredient in “magic mushrooms” and has been shown to have great value in treating certain medical conditions, like depression, anxiety and life-threatening cancers.
Besides these states, the cities of Oakland and Santa Cruz in California as well as Washington, D.C., Somerville, Cambridge and Northampton (Massachusetts) have all decriminalized psilocybin.
It should be noted that all psychedelics are illegal in the United States under federal law and drugs like MDMA, DMT, ketamine, LSD and psilocybin are Schedule 1 controlled substances. This means they are viewed as having no medical purpose and no legitimate commercial application