Here's Why People Are Freaking Out About the Psychedelic Wellness and Healing Initiative

The voter initiative is one of the country's most progressive drug reform proposals to date. Should it pass, it could alter the regulatory structure of the cannabis industry in California.

Buying LSD and psilocybin mushrooms from authorized stores could be legal in California by 2026. At least theoretically. 

Californians who are registered to vote could soon see a historic measure on the ballot that would legalize the use, sale, production, and facilitation of entheogens. It's called the Psychedelic Wellness and Healing Initiative, and it could change the way entheogens, including cannabis, are purchased in California.

What does that mean, exactly? If it's passed, the proposed bill would create a brand new legal drug market that would allow businesses to acquire licenses to legally produce, transport, and sell the following psychedelics: Psilocybin mushrooms, LSD, MDMA, ayahuasca (DMT), Ibogaine, mescaline from non-endangered cacti, and cannabis. Not adult-use cannabis, however. Only medical cannabis.

But doesn't cannabis already have its own industry? Yes. And California's Legislative Analyst's Office (LAO) is alarmed about the definition of entheogen including cannabis. The LAO published a fiscal impact report a month ago suggesting that the initiative could pose a potential threat to the established tax and regulatory framework of the legal cannabis industry.

They reason that if the bill is interpreted and implemented in a certain way, a new market for legal cannabis sales would push consumers to purchase flower from the new market rather than the one Prop. 64 created. The general consensus among those we spoke to from the cannabis industry is bewilderment.

"No pun intended, but you can see how this would create a sticky situation," says Shay Aaron Gilmore, a San Francisco-based attorney and member of the city's Cannabis Oversight Committee. "The [Legislative Analysts Office] is positing that there could be an undermining of the cannabis economy here in California, not because [the regulatory framework] currently in place is so powerful and strong and robust and healthy that it can resist major policy changes that alter consumer behavior. That's not what they're saying."

The final language of the proposal, however, explicitly states that the new market would only extend to businesses with an "M-license," or medicinal cannabis license, granted to them by the Department of Cannabis Control (DCC). Dave Hodges, a co-author of the initiative and founder of Zide Door Church in Oakland, says the proposal is written to keep the adult-use cannabis industry intact.

"Everybody who already has an M-license granted to them from the DCC would already have an entheogenic business under the initiative," he says, adding that consumers, or patients, would have to obtain a doctor's recommendation to purchase medical cannabis legally. "The only people who would be losing money from this model are the regulators who are charging insane amounts [of money] for permits, making [business owners] jump through unnecessary hoops, and making regulations that set up businesses for failure. They're the ones who are going to lose some money."

The fiscal impact report also stated that the initiative could cause many legal cannabis businesses to abandon the current legal market for the new proposed one, resulting in a "net reduction of hundreds of millions of dollars in cannabis-related tax revenue." 

We suspect the LAO fears cannabis businesses might exit the legal market to join this new one because it would spare them from facing taxes higher than those levied on comparable, non-psychoactive plant or wellness enterprises. Considering legal cannabis businesses are currently getting taxed into oblivion, it makes sense that this tax structure would appeal to business owners. However, the measure allows cities to apply an excise tax of up to 10 percent on entheogens sold for medicinal or therapeutic purposes.

Hypothetically, fewer taxes applied on businesses means a more affordable product for people buying medicinal cannabis. That means medical cannabis patients—people who rely on the plant for conditions such as HIV, chronic pain, cancer, epilepsy, endometriosis, PTSD, fibromyalgia, anxiety, etc—are in luck. The taxes applied to legal cannabis make products inaccessible to the average person. 

"The reality is that anybody in California who regularly smokes a lot of cannabis, like medical patients, are not buying their medicine from a [legal] dispensary," Hodges says. "That's a fact."

Hodges is right. According to Cal Matters, two of every three cannabis purchases are made on the illicit market. But it's beyond a California issue. POLITICO reports that 75 percent of people in the United States in 2022 prefer to purchase cannabis from the unregulated market.

Nara Dahlbacka, a cannabis lobbyist in California, says she'll worry about the legal cannabis industry if this initiative gets enough signatures and is voted into law. Mainly, because of how much strife everyone in the industry has already endured. Any more shake-ups could send people over the edge.

"I think the chaos would occur when people with adult-use licenses inevitably choose to operate in the new market, which might technically be illegal the law under Prop.64," she says. "Businesses could lose their legal cannabis licenses and get suspended for up to five years or more…But the fact that we even have to talk like this about how the initiative could hurt cannabis is really just an indication of how badly cannabis doing in California."

She notes that the initiative could resurrect the medical cannabis market, which has since evaporated thanks to the adult-use industry. 

"The biggest failure of Prop. 64 has been to the [medical cannabis] patients who relied on this medicine. Legal cannabis is completely unaffordable for anybody who doesn't have disposable income. So if this initiative were to pass, maybe there would be a return of medical cannabis, which would be really great for patients."

What's Wrong With the Cannabis Industry?

For context, the legal cannabis industry has been in a state of decline since the wholesale price per pound of flower plummeted from $1200 to $250 per pound at the end of 2021. A culmination of issues ultimately led to that breaking point, one of which was—and still is—that nearly 60% of California's cities prohibit all legal cannabis activity, including cannabis sales. It's a problem because Prop. 64 dispensaries are the only avenue through which cannabis can be legally sold and purchased—and they don't exist in the majority of the state. Most people buy cannabis from the unregulated market for that reason…and because it's more affordable.

Another related issue is that the state allowed cities and counties to set their own limits on farm size, allowing people to amass unlimited cultivation licenses. This quickly—and inevitably—led to an oversupply problem because there are a finite number of dispensaries in the state and millions of pounds of flower. 

Furthermore, cannabis is taxed at every point on the supply chain—including at cultivation, which is unlike any other agricultural product. It costs roughly $150 to harvest a pound of cannabis, but the state cultivation tax is $161 per pound on top of local cultivation taxes. The wholesale price drop plus the cultivation tax creates debt before the plant is harvested. This creates what's often described as a "debt bubble" that's then shuffled up and down the supply chain.

"When you are producing a pound [of cannabis] in a few hundred dollars and you have state taxes over $160 per pound, you're looking at a net loss every time you harvest," Ebony Anderson, owner of Josephine and Billie's dispensary in ​​Leimert Park, told me for a KCRW story in 2022. "So as that debt gets passed on from the small farmer all the way down to retail, we're all taking a hit."

The Proposal Could Make the State Money

But wait. The fiscal impact report also states that California could earn more revenue if the initiative is voted into law. Yes—the same report that spells out doom and gloom for the cannabis industry also supposes that the state could make a shitton of money from this proposal. 

"If there is not a shift [away from the legal cannabis market], the measure could result in a net increase in tax revenue, as people selling currently illegal entheogenic plants or substances or providing related services could begin doing so legally under state law and therefore pay sales and personal income taxes," the report says.

The fiscal impact report was written by several government regulators, some of which are from the Department of Finance. Hodges believes their concern about the proposal's impact on cannabis stems from not understanding the nuances of the cannabis industry, and they don’t want their programs to lose money.

"Most cannabis businesses would be thrilled to know they weren't going to get heavily taxed anymore," Hodges says. "It's clear [some of the regulators] don't understand the industry at all. They just see [cannabis] as an industry that produces checks for them."

Hodges contends that there's much opportunity here for patients and business owners. 

"There's a huge potential, and it could be an amazing thing for everybody in California," he says. "It could revitalize the cannabis industry, and it could bring regulations and cannabis back to a point that makes sense, and creates access to entheogens through retreats, therapy centers, dispensaries, and literally any type of business you could imagine."

The bill must get enough valid signatures from registered voters to get on the ballot. For that to happen, the proposal still needs funding. 

"This is broad legalization and decriminalization designed for businesses and the people," Hodges says. “That may be why regulators are concerned.