Currently there are two States that have legalized psychedelics, namely: Colorado and Oregon. California is now considering to join these states as well. In February 2024, California Sen. Scott Wiener, and Assemblymember Marie Waldron, proposed Senate Bill 2012 named The Regulated Psychedelic-assisted Therapy Act and the Regulated Psychedelic Substances Control Act.
This new proposal follows Governor Newsom’s veto of a bill in October 2023 that would have decriminalized the possession of psychedelic drugs. Newsom stated that he would support a bill focused more on therapies and treatment: “California should immediately begin work to set up regulated treatment guidelines — replete with dosing information, therapeutic guidelines, rules to prevent against exploitation during guided treatments, and medical clearance of no underlying psychose.”
This new Senate Bill 1012 focuses more on therapies and treatment following Newsom’s comments and previous veto. Senate Bill 1012 would allow adults 21 and older to use the hallucinogenic drugs psilocybin mushrooms, MDMA, DMT and mescaline in a controlled setting and under the supervision of a licensed and trained facilitator. Furthermore, Senate Bill 1012 would require California to establish a licensing board that would develop training and oversight rules for therapy facilitators. Therapy Facilitators would have to screen individuals before they can participate. Also, the bill calls for the creation of a public-private fund to support grants for public health education related to psychedelics.
New research into psychedelic therapies
There is a lot of research being conducted in regard to how psychedelic drugs may positively impact and treat mental health illnesses, such as depression or PTSD. One such study was published by the Association of America Medical Colleges. The U.S. Food and Drug Administration has not approved psychedelic-assisted therapies. However, in December 2023, the nonprofit research group Multidisciplinary Association for Psychedelic Studies applied for FDA review of its MDMA-assisted therapy for PTSD, which could come later this year. Furthermore, the Department of Veterans Affairs announced its intent to study psychedelics for the treatment of PTSD and depression.
A Complex Tax Landscape for Psychedelics and Cannabis
Similarly to Cannabis, where the Federal government has outlawed it but various states have legalized Cannabis, a complex tax landscape may be created for legal businesses involved in psychedelic activities. Many psychedelics fall under the category of Schedule I substances under the Controlled Substances Act. This classification usually results in the disallowance of federal tax deductions related to the production and sale of these substances. IRS Code Section 280E, originally conceived for illegal drug trafficking organizations, has been used to restrict deductions for businesses engaged in the sale of controlled substances. But companies involved in legal psychedelic activities, specifically such as research or therapy, may not be subject to the same restrictions, potentially allowing them to claim deductions, such a Cannabis businesses do. For example, Cannabis business owners can deduct their cost of goods sold, which is basically the cost of their inventory. What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries, and travel expenses. In addition, businesses operating in the psychedelics industry and Cannabis industry must navigate different state tax laws.
What Should You Do?
The nuance of this subject matter and different federal and state tax laws can be a challenge for business owners so let the attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. help you minimize taxes and achieve compliance.
