With Magic Mushrooms, Small Businesses Lead, Hoping Laws Will Follow

(Bloomberg Businessweek) -- It’s hard to miss the bright green banner draped over Vancouver’s Coca Leaf Café that declares: MUSHROOM DISPENSARY. Inside, aging hippies, solitary businessmen, and streetwear-clad youth peruse glass cases filled with a dozen strains of “magic” mushrooms with names such as Penis Envy and Jedi Mind Trick. Also on the menu at the little shop in the city’s rapidly gentrifying Chinatown are mushroom chocolates and microdosing capsules, as well as more advanced offerings including LSD tinctures and vape cartridges containing DMT (the active ingredient in ayahuasca). To make a purchase, flash an ID, sign a health form, buy a product, and—if inclined—leave a Google review.

Magic mushrooms are moving from the margins to the mainstream. In the past two years, at least six ’shroom dispensaries have opened in Vancouver, which recently decriminalized hard drugs and has become a key testing ground for broader policy reform. Similar—albeit more discreet—shops are opening in US cities where mushrooms have been decriminalized, such as Oakland, Calif., and Portland, Ore.

Commercial sales are still illegal in the US and Canada, but these black-market businesses operate through loopholes including religious freedom exemptions, gifting programs, and pop-up events. Digital sellers proliferate on social media, where anonymous accounts openly hawk heavily branded wares.

“Drug dealers always win,” declares Coca Leaf Café owner Dana Larsen, a cannabis activist who says dispensaries such as his are key to advancing mushroom legalization by normalizing recreational use; the dispensary had a court date over licensing issues in June. “We’re putting pressure on the legal system to improve.”

Magic mushrooms are the breakout star of the burgeoning psychedelic revolution around mental health and wellness. Psilocybin—the main hallucinogenic compound in more than 180 mushroom strains—has shown impressive results for conditions such as depression, anxiety, and drug and alcohol addiction that have long been resistant to established medical treatments.

A study published in in July also found that those ingesting psilocybin mushrooms in small quantities—a technique known as microdosing—reported better moods and mental health. Likewise, popular media coverage such as Paul Stamets’s documentary and Michael Pollan’s book (now a buzzy Netflix series) has helped broaden acceptance of these substances as tools for self-optimization.

But who gets to capitalize on magic mushrooms—and how they gain access—remains a key question. The global pharmaceutical psilocybin market, led by companies such as Johnson & Johnson, is predicted to reach $6.9 billion by 2027, according to Data Bridge Market Research.

The vast grassroots movement to decriminalize psilocybin mushrooms is pressing the issue. After Denver led the way in 2019, Oakland, Washington, Detroit, Seattle, and Santa Cruz, Calif., soon followed. Fifteen cities or municipalities have now done it, and similar bills are being considered statewide in California, Hawaii, and New Jersey. Although current laws protect only personal psychedelic use, decriminalization is fostering a climate in which underground operators are engaging in sales, distribution, and direct or auxiliary services with increasing boldness.

“Drug dealers always win. We’re putting pressure on the legal system to improve”

“It’s crazy what’s happening,” says Alli Schaper, co-founder of Multiverse, an online emporium for legal brands selling nonpsychoactive, or adaptogenic, mushrooms. “There are a thousand [psychedelic] microdosing brands selling on Shopify, and even though it’s very illegal, they’re just going for it, seeing if they get caught.”

Other industry insiders report the rise of community circles where psychedelics are administered by underground healers, as well as pop-up farmers markets and “seshes”—covert events where attendees pay an entry fee and are able to purchase mushrooms directly from growers.

“There is a lot of clandestine investment in currently underground or gray-market areas,” says Ismail Ali, director of policy and advocacy at the Multidisciplinary Association for Psychedelic Studies, the preeminent nonprofit now sponsoring multiple clinical trials for psychedelic-assisted therapy. “Decriminalization provides a level of protection for behaviors that are already occurring.”

These changes in the law place personal use and possession as the lowest priority for law enforcement, reclassifying such acts as civil penalties subject to fines instead of jail time. Activists say the measures have had a direct impact on the risks that underground operators are more willing to take.

“People are feeling more confident that they won’t go to jail, so much so that they’re opening up storefronts,” says Nathan Howard of Plant Medicine Healing Alliance, an advocacy group in Portland. “They don’t have big neon signs yet, but they’re definitely accessible if you know the right people.”

“Drug dealers always win. We’re putting pressure on the legal system to improve”

In Oakland, a psychedelic church called Zide Door operates as a de facto mushroom dispensary through the federal religious freedom exemption; it requires customers to sign a waiver declaring that they accept psychedelic plants as part of their spiritual practice. Sitting on an industrial street, the establishment—one seasoned cannabis reporter compared it to a basement punk rock club—has become an integral part of the city’s growing psychedelic community. Despite a police raid in 2020, the church remains up and running.

“The volume is definitely turned up,” agrees Travis Tyler Fluck, co-founder of Denver Mushroom Cooperative and a leader of the Decriminalize Denver movement. “There are group meet-ups where people are happy to share mushrooms and talk about this stuff. It’s a source of pride.”

An election night watch party on May 7, 2019, for supporters of Ordinance 301, which decriminalized psilocybin mushrooms in Denver.Photographer: Michael Ciaglo/Getty Images North America

Leaders of the movement say decriminalization is an important step to take before legalization, because it allows individuals and smaller businesses to enter the game at a lower cost than might happen with immediate, broad legalization and subsequent bureaucracy.

“It allows people to engage at a small level without having to go corporate right out of the gate,” says Carlos Plazola, who co-founded the influential Decriminalize Nature organization in response to what he views as the missteps of cannabis legalization.

Because of stiff regulations, high tax rates, and steep licensing fees, the recreational cannabis industry is now dominated by big businesses with deep-pocketed investors, while plummeting profit margins have also made it difficult for mom and pop shops to survive. As a result, many legacy cannabis operators have chosen to remain underground; California’s illicit marijuana market is now $8 billion, double the size of its legal one.

In Oregon, the only state where psilocybin has been legalized for therapeutic use, all residents over 21 will have access to mushroom therapy centers beginning next year, when the law goes into effect. At these centers, clients won’t be allowed to purchase mushrooms for home use. Rather, they’ll need to go through a process involving the supervision of a licensed facilitator trained under a government-approved program, who’ll assist with administering the mushrooms and guiding them through sessions. Although the price of these therapies is still undetermined, it will likely cost several thousand dollars and not be covered by insurance.

The challenge for regulators is how to create a framework that will allow legal mushroom businesses to thrive against fierce competition from the underground. “We know there is an unregulated market, as well as centuries of use by Indigenous communities,” says Angela Allbee, the psilocybin services section manager at the Oregon Health Authority, the government agency tasked with awarding licenses for therapy centers, cultivators, testing labs, and service providers.

Allbee says the OHA has engaged with community outreach to encourage participants in the unregulated market to come on board. The agency is also engineering a “spore-to-door” tracking system to prevent an overabundance of product from being diverted into the unregulated space. It will be similar to the current “seed-to-sale” system, known as Metrc, that tracks commercial cannabis activity across the distribution chain.

Some experts are concerned that the current underground market lacks quality control and other safety measures. “It’s the wild, Wild West, and you can do whatever you want,” says Ophelia Chong, cannabis consultant and founder of Asian Americans for Cannabis Education. “There’s no [federal] regulations or testing, it’s all cash, and there’s no one to answer to.”

Branded wares from anonymous delivery services use design to add a sense of legality to the otherwise black-market businesses.Source: Bloomberg

Despite these concerns, the gray market will likely continue to serve large segments of the population that can’t afford legal mushroom therapy. “This model is following the for-profit health-care system that is not accessible to most people,” says Alex Wilson, lead organizer at Decriminalize Nature Portland.

Some activists have also become underground entrepreneurs: Reggie Harris, a key member of Oakland’s decriminalization movement, opened a mushroom potency testing company called Hyphae Labs, which hosted the first Psilocybin Cup in 2020.

“Right now, we benefit from the ambiguity because it keeps Big Business out,” Harris says. “You’re not gonna get an investor for $100 million when the rules could change tomorrow.” He also regularly hosts educational events in California that center on people of color. “Decriminalization allows people like myself and other legacy folks to get our feet into the game,” he says. “It gives us a runway.”

Some brands are waiting for federal legalization before entering the psychedelic marketplace, choosing to lay the groundwork with functional, nonpsychoactive mushrooms such as chaga and reishi. Brothers Chris and Joe Claussen, co-founders of First Person, began giving psychedelic mushroom microdoses to their father after watching his slide into dementia.

“We saw some amazing results and started microdosing ourselves and sharing with our friends,” Joe says. “People were saying that it’s curing their migraines, and they feel better with their kids.” First Person now sells capsules of functional mushrooms and other nootropics with alleged “brain-enhancing” attributes that target neurotransmitter pathways.

“Drug dealers always win. We’re putting pressure on the legal system to improve”

The company recently acquired a grow-op and research and development company in Jamaica, where magic mushrooms are legal, and started an adaptogenic mushroom farm in Washington state; First Person has also filed for patent applications and has a pending Drug Enforcement Administration license to grow mushrooms in the US. Legalization, Chris says, “is going to be a sh-tshow with 10,000 brands trying to create a name for themselves. We’re creating a larger brand from the ground up, going from spore to store.”

For now, black-market operators are reaping the benefits of soaring interest from new consumers who might not have a drug dealer’s number in their phone. Coca Leaf Café’s Larsen says his mushroom dispensary sees about 100 customers and $5,000 a day in sales. “There’s a lot of potential revenue in this kind of business,” he says. “I believe we will see hundreds more shops” across the US and Canada.

“Legalization will happen, too, and you’ll see the regular sources of capital and entrepreneurs,” adds Plant Medicine’s Howard. “But there’s such a demand for things that actually work that the space has taken off—with or without government support.”

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