Natural Medicine Health Act and Psychedelics Market

Exploring the Implications of the Natural Medicine Health Act on the Psychedelics Market in Colorado

By Leni Plimpton, Fortis Law Partners

In November 2022, Colorado voters passed Prop 122, also known as the Natural Medicine Health Act. The Colorado legislature then established a regulatory structure for the voter initiative with the May 2023 enactment of Colorado Senate Bill 23-290, known as the Natural Medicine Legalization and Regulation Act. Together, they usher in a new age of legalized (non-synthetic) psychedelics in Colorado. As this market emerges, many challenges await new businesses looking to enter the natural medicine business landscape. Additionally, employers in the state face various challenges and risks.

Broadly speaking, under the new scheme, psychedelics in Colorado will be sorted into two buckets: licensed mental health/therapeutic use and so-called “personal” use.

Personal Use

The Natural Medicine Health Act decriminalized the possession and use of psilocybin and its derivative, psilocin; dimethyltryptamine (DMT); ibogaine (an African shrub); and mescaline (except mescaline derived from the peyote cactus). The “personal use” side of the equation currently operates under strict restrictions for any sort of market economy–effectively prohibiting advertising and any kind of “remuneration” with respect to personal use.

With personal use, any person over the age of 21 may use and cultivate psychedelic mushrooms and other plant-based psychedelic substances without fear of prosecution (with some limitations). Personal use is, generally speaking, “the consumption of natural medicine” and includes sharing “within the context of counseling, spiritual guidance, beneficial community-based use and healing, supported use, or related services.” 

Licensed Use at Healing Centers

For the yet-to-be-developed licensed use side, the law currently only applies to psilocybin and its active ingredient, psilocin, both of which are contained in certain types of fungi. In 2026, the Natural Medicine Advisory Board has the option to add DMT, ibogaine, and non-peyote mescaline.

The Department of Regulatory Agencies will license and regulate facilitators, while the Department of Revenue’s natural medicine division will handle the business entity side, including licensing for healing centers, testing, cultivation, and manufacturing, together with the Colorado Department of Public Health and Environment. Facilitator licenses will be available no later than December 31, 2024. Unlike cannabis, where local governments could prohibit dispensaries, local governments cannot restrict or prohibit the provision of licensed facilitation services.

Employment and Workplace Implications

Employers must be ready to face new challenges in this brave new world. Currently, neither Prop 122 nor SB 23-290 require employers to provide healthcare coverage for natural medicine therapies, even if employees are now legally entitled to use them. It’s important to note that while Prop 122 does give people over the age of 21 the right to use and cultivate natural medicines, it does not affect existing drug-free workplace policies. This is despite the fact that Colorado prohibits employers from stopping employees from engaging in “lawful” off-duty activities. The simple reason for that is psychedelic substances are still federally illegal.

The accommodation of disabilities is an area of uncharted territory, particularly given the healing therapy side of the law. As has been the case for decades, employers must reasonably accommodate religion. The guiding principle remains, as always, whether a given employee’s need presents an undue hardship or a direct threat to safety. While these principles have not changed, the newly available substances will surely create tricky questions and headaches for employers.

Employers with questions on specific employee matters should consult an experienced employment attorney knowledgeable about these state laws and their legal implications.

Natural Medicine Health Act Market Implications

So, what might a psychedelics market look like in Colorado? At this time, we don’t know for sure and likely won’t for a while. What we do know is that the regulatory body has stated that they will give priority licensing to Colorado residents, but there’s no Colorado residency requirement. 

We also expect there to be some overlap with the cannabis market in the sense that, similar to cannabis, plant-based psychedelics are still federally illegal substances. This means that tax, licensing and ownership issues are likely to face similar challenges as those in cannabis. However, we ultimately expect this to be a very different market from cannabis, with the most crucial difference being that the Natural Medicine Health Act does not establish a retail psychedelic system. As of now, we know for sure that consumers will not be shopping different varieties of psychedelics at a brick-and-mortar retail location. 

We expect the psychedelics business ecosystem to look something like a Venn diagram with different overlapping areas – natural medicine, medicalization, and support services. Adjacent applications and businesses will emerge. Healing centers will need real estate. They will also need CPAs, business advisors, and lawyers who are well-versed in the rules and regulations. Thus, we foresee a psychedelic ecosystem and market emerging, but one that is relatively limited due to the amount of regulation and restrictions. 

Litigation and Risk Assessment

As with any industry, disputes are sure to arise. But we have learned a lot of lessons from cannabis litigation. Namely, operating in these gray areas with state-legal but federally illegal substances is ripe for conflict, fraud, misperceptions, mistakes, and bad actors. The law explicitly protects licensed professionals, such as lawyers, doctors, therapists, and social workers, from experiencing any repercussions from their participation, legally, in the psychedelic space. However, it is still a very uncharted legal landscape with many risks and potential limitations.

In addition, licensing will involve environmental, social and governance requirements, which makes public benefit corporations a viable entity option for those entering this space. Like cannabis, other tax-related entity formation concerns will need to be top of mind for psychedelic-curious entrepreneurs.  

As Colorado continues down this path, much remains to be determined. It is an exciting time, but caution is warranted as businesses and individuals begin to operate in this new world of psychedelics. 


Disclaimer:

The information provided in this article does not, and is not intended to, constitute legal advice; instead, all content is for general informational purposes only.  Readers should contact their attorney to obtain advice concerning any particular legal matter.  

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Lenora Plimpton

Lenora Plimpton

Lenora (Leni) specializes in employment and commercial litigation. She has experience with a wide range of employment and labor matters, including claims of age, race, and sex discrimination; disability discrimination; EEOC and CCRD charges of discrimination; mediations; arbitrations; and unemployment insurance audits.

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