Exploring the Psilocybin Service Center as the Center of Gravity of a Psilocybin Business Model
In 2020, Oregon voters passed Ballot Measure 109 to legalize psilocybin services administered by licensed facilitators under supervised conditions at licensed service centers. The Measure created a nearly two-year runway for the Oregon Health Authority (OHA) to create administrative rules to regulate the program.
OHA already issued proposed rules for facilitator training, products, and testing. However, the public has yet to see proposed rules for individuals interested in service center licensure. This article discusses how service centers may serve as the center of gravity in a business model based in Oregon’s legal psilocybin program.
Interest in service center licensure
A recent survey published by OHA found that 20% of the more than 4,000 responses indicated interest in obtaining service center licensure. We believe this number will be even higher once the public sees proposed rules on how exactly centers will operate. While we wait for draft rules, it is important to understand just how valuable service center licensure could be in Oregon.
Rulemaking for service centers commences in the fall of 2022, and OHA will adopt final rules by December 31, 2022. So far, Measure 109 lays out what service center licensure permits, application qualifications, and general guidance on where centers can be located. Additionally, an OHA bulletin states that rulemaking will consider operating ancillary or peripheral services alongside psilocybin services, offering additional revenue streams and helping with service center financial viability. This guidance indicates that the service center model may be scalable, thus offering vast business opportunities, so a smart psilocybin business plan should be grounded in service center licensure.
Opportunities for profitability
First, although dependent on final rules, OHA guidance indicates that service centers in the future may be scaled to offer a variety of wellness-related services. Health and wellness professionals, who practice in areas such as acupuncture, naturopathic medicine, massage, chiropractic medicine, and life coaching, may seek to add psilocybin services to their menu of offerings. Transitioning to psilocybin services or adding psilocybin services to an already existing suite of services will allow health and wellness professionals to capitalize on their existing customer base, which is likely already interested in holistic health and niche lifestyle treatments. Professionals will also already have general business management skills and vendor relationships that will position them to hit the ground running when it comes time to open a psilocybin service center.
An important note of caution, neither OHA nor any licensing boards, to our knowledge, have yet opined on whether certain licensed medical practitioners, such as doctors and psychologists, will run into ethical issues or risk their license if they engage in a psilocybin business or provide services. That issue is outside the scope of this post but is an important consideration. Green Light Law Group will track this issue and keep readers informed of any future guidance or applicable rules.
Service center licensure also presents strategic opportunities for entrepreneurs and small businesses. The barriers to enter the industry are relatively low; qualified applicants need only be 21 or older, the center must be located within the geographical bounds permitted under Measure 109 and local land use laws and zoning, and until 2025, 51% of ownership interest in the licensed entity must be held by at least one person who has been an Oregon resident for two or more years. Compared with the operating costs required to support psilocybin cultivation and processing operations, which may require industrial machinery and other significant infrastructure, operating a service center may be substantially more cost effective. Although the Advisory Board has not yet published recommendations concerning the minimum number of required employees and job positions that service centers will need to hire, it’s possible that licensees will not necessarily need to purchase real estate. Data from the OHA survey indicates that those interested in service center licensure already intend to run small, efficient operations. Of those interested in service center licensure, about 76.6% intend to hire fewer than 10 employees. Service centers may also see increased savings by potentially hiring facilitators on an independent contractor basis, meaning there may be limited liability and lower payroll expenses on a continuing basis.
Significant opportunities also exist for those with the capacity to vertically or horizontally integrate their business. Measure 109 allows a service center licensee to simultaneously hold a producer license at the same or different premises. Additionally, service center licensees may hold up to five service center licenses. The potential for vertical and horizontal integration based on these provisions is boundless. By holding both a service center and a manufacturer license, service center operators can lower costs through economies of scale, ultimately increasing profitability and lowering transportation expenses and turnaround times between manufacturing steps. Conversely, if a service center holds several service center licenses, its competition is reduced, its market power increases, and other synergies, such as marketing, are possible. Despite these benefits, a company should carefully evaluate the costs and complexities of vertical and horizontal integration before making a business decision.
Finally, service centers present a massive business opportunity simply because Oregon is literally the only place in the country with a state-sponsored psilocybin program. Measure 109 has zero residency requirements for clients, so service center licensees can expect to serve both out of state and out of country clients. The Oregon residency requirement for licensees stands to benefit service center licensees by acting as a “golden ticket.” The residency requirement is in effect for only two years, meaning that starting in 2025, as far as we know, service center licenses may be given out to anyone who otherwise qualifies. The time-dependent nature of the current residency requirement gives Oregon residents a head-start at establishing profitable service centers in the state before big business and foreign corporations swoop in. Aside from the residency requirement’s “golden ticket” characteristics, the requirement also ensures that Oregon businessowners who take on out of state or foreign investment generally still stand to retain 51% ownership of the entity, unless financing arrangements provide otherwise.
In conclusion, service center licensure offers substantial business opportunities because of the possibility for combining psilocybin services with already existing health and wellness services, the low barriers to entry, the opportunity for vertical integration and horizontal expansion, and the fact that a similar psilocybin program can’t be found anywhere else besides Oregon.