As interest in psychedelics grows and states begin to legalize possession, usage, and promotion, more and more entrepreneurs are contemplating starting businesses based on psychedelic products and services. But for aspiring psychonaut entrepreneurs, navigating the legal and financial complexities can be tricky, particularly in light of the prohibitions under federal law. Because of the intricacies involved, prudent founders considering whether to start a businesses and raise capital in this industry should engage lawyers with expertise in the various disciplines implicated in order to help maximize the likelihood of success and mitigate risks.
In this blog post, we briefly explore three of the areas in which psychedelic founders need expert legal representation to successfully start and grow their businesses.
1. The Regulatory Landscape. The regulatory environment for psychedelics, including the interplay between federal, state, and local law, is complex and constantly evolving. Lawyers with special expertise in navigating licensing, permits and other restrictions applicable to different substances and use cases are critical to advising you on permissible business activity and relevant limitations. Although sales of psychedelics are currently illegal in the United States on the federal level, some states have begun to legalize (or decriminalize) the use of certain psychedelics, such as LSD, psilocybin, mescaline, and peyote. For example, Colorado recently legalized the growing and possession of psychedelic mushrooms and other similar drugs (however, sales are still not permitted), and voters in Oregon recently approved a measure to create state-licensed psilocybin-assisted therapy programs. Engaging a regulatory lawyer who specializes in the Controlled Substances Act and related state and local legislation is a prerequisite to considering whether to enter this industry.
2. Initial Corporate Formation, Issuing Equity and Raising Capital. Starting a high growth business involves forming a legal entity and issuing stock to the founders, employees, and ultimately, investors. A skilled lawyer with specific expertise in advising early stage companies is key to helping you properly form a legal entity, bring on your co-founders, and ensure that your company owns all the various work product created for the business. Setting up your capitalization table and issuing equity, while taking into account various securities laws, tax and other considerations such as founder disagreements and breakups, implicates a host of state and federal laws as well as many business considerations. And once you are ready to raise capital, you'll need to negotiate the rights, preferences, and control rights given to your investors. Founders should engage a corporate finance lawyer who specializes in representing high growth companies to assist at the earliest opportunity. Failing to properly set up your company can cause substantial problems down the road, and in some cases can even create barriers to obtaining financing. But an experienced lawyer can help set the company up for success and facilitate capital investment.
3. Intellectual Property and Advertising. Protecting the brand names, trademarks, and other creative work you build for use in connection with your psychedelic related business will help increase the value of your venture. A lawyer who specializes in intellectual property rights will help counsel you on what can (and can't) be done to protect your marks as the legality of psychedelics evolve. And a lawyer who specializes in advertising compliance will help ensure that you can get the word out about your business without running afoul of applicable laws and media guidelines.
The world of psychedelics and related businesses continues to evolve rapidly, with regulation changing constantly and general interest taking off. Starting any business requires good counsel, but founders looking to start ventures in this space will face additional challenges and hurdles because of the number of unique legal issues implicated by such businesses.
This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.
