A. License Types, Qualifications, Procedures, and Financial Interests
The Natural Medicine Division’s first set of draft rules focuses on the overall licensing framework for Natural Medicine Businesses. These rules establish qualification standards for licenses, as well as procedures for renewal, revocation, and appeal. They include several broad rules that apply to all four types of Natural Medicine Business, as well as rules related to permissible financial interests. Per Colorado statute, a person may not hold a financial interest in more than five natural medicine business licenses. However, the statute leaves regulators to decide what qualifies as a financial interest falling within the restriction. Many sections, such as specific rules for the different types of Natural Medicine Businesses, are intentionally incomplete. The Division intends to flesh these sections out over the course of its upcoming work groups, where the Division will hear from stakeholders.
Even in their current form, these rules provide some insight into how the Division is approaching its rulemaking duties under the Natural Medicine Code (“NMC”), primarily in the overall licensing framework the Division is contemplating. Under the proposed structure, owners and employees (which includes facilitators) of Natural Medicine Businesses will require individual licenses, separate from the business license itself. Division officials have justified this additional license requirement as necessary to extend Division jurisdiction over the employees of the businesses it regulates.
A public hearing on these rules took place on March 20th, 2024, the Division’s first official rulemaking hearing. Over the past several months, the NMD has held eleven informal “listening sessions,” where interested members of the public could share any information and considerations for the Division to consider when drafting rules, before the drafting process began.
Having moved into formal rulemaking proceedings, the Division’s latest round of hearings focus on discussing draft rules. Division officials requested that the public share what they like or dislike about a given rule, and welcomed suggested language changes. These hearings, also called “Work Groups”, are more structured than the previous “Listening Sessions.” Division officials begin with a brief presentation on a subset of draft rules, sharing high-level takeaways, sources upon which the Division drew when drafting the rules, and the intent behind the rules. The public is then invited to share feedback or ask questions, with each speaker allotted three minutes.
Thus far, the public has largely urged the Division to avoid overly broad and rigid rules, and to allow for a wide range of business arrangements, facility uses, and methods of natural medicine administration.
License Types & Qualifications
Draft rules propose three types of licenses to be issued by the Division: Natural Medicine Business; Owner; and Employee. A Natural Medicine Business license is tied to a specific location, and will be issued to Healing Centers, testing facilities, product manufacturers, and cultivation facilities. All owners of a Natural Medicine Business will be required to obtain an “Owner license”, while any person who handles natural medicine or has unrestricted access to natural medicine in a Natural Medicine Business will be required to obtain an “Employee license.” This includes Facilitators, who will need to obtain a license from the NMD to work in, or own, a Healing Center.
Natural Medicine Businesses: General Qualifications for Application
All applicants for Natural Medicine Business licenses must be 21 or older, pay an application fee, be current on any taxes related to the Natural Medicine Business, and submit to a criminal background check. Applicants will be required to disclose the name and address of all owners who are natural persons. If an owner is an entity, the application must also include a certificate of good standing, information of the entity’s registered agent in Colorado, and organizational documents such as Articles of Incorporation, bylaws, operating agreements, or partnership agreements.
Colorado statute mandates that applicants undergo a criminal history background check, but leaves to regulators the discretion to determine which prior convictions would disqualify a person from licensure. Under current draft rules, the Division will not issue a license if a background check reveals previous history of violent, sexual, or fraud crimes; or of violating rules related to natural medicine after 2023.
Disclosure of Owners and Financial Interests
All owners holding a financial interest in more than one Natural Medicine Business license must be disclosed, along with a statement that no owner holds, or will hold, an interest in more than five Natural Medicine Business licenses. Applicants must cooperate with the Division in providing tax documentation, upon request.
Facilities Requirements: All Licensed Natural Medicine Businesses
All applications for a Natural Medicine Business License must provide documentation of the following:
- Possession, or entitlement to future possession, of the premises to be licensed;
- A security plan for the security/surveillance of the Licensed Premises;
- Compliance with local zoning laws;
- If a Healing Center, the location is not within 1000 feet of a child care center or school (unless waived by the appropriate local government);
- The proposed location is not shared with an alcohol or marjuana license;
Note: Specific security requirements for licensed premises were released on April 4th, 2024, discussed in Part I.B., below.
Facilities Requirements: Healing Centers
Applicants for Healing Center licenses must additionally demonstrate:
- The applicant will employ, or contract with, at least one licensed facilitator.
- If the Healing Center will offer outdoor administration, a detailed description of outdoor administration areas, including their location and verification that the area is free from hazards as required in the security/surveillance plan, is also required.
Additional rules specific to healing centers are expected. The Division will host a work group focused on Healing Center-specific rules on May 1st, 2024.
Several commenters at the March 20th meeting urged the Division to adopt licensing rules that accommodate locations that will not be operating as full-time healing centers. For example, for a retreat-style property that occasionally hosts natural medicine services, or small, existing therapy practices which may offer only a handful of administration sessions per month. Commenters suggested allowing temporary licenses, as well as ensuring restrictions are minimized. Similarly, allowing for part-time designation of administration areas within a licensed premises would accommodate multi-use facilities.
Multiple speakers asked the Division to reconsider requiring a Healing Center to have an owner that is also a facilitator. Given the investment of time and energy required to become a facilitator, such a rule would be overly burdensome and not obviously necessary to the successful operation of a healing center.
Regarding the rule prohibiting healing centers within 1000 feet of a school, one commenter asked if the rule would extend to churches which provide daycare services, and whether the rule applied to Natural Medicine Businesses other than Healing Centers. Division officials clarified that the rule would only apply to healing centers, but that local ordinances may similarly limit other license types under time, place, and manner restrictions. Another commenter urged an exception to the rule for residential facilitation.
Facilities Requirements: Cultivation and Product Manufacturer Licenses
This set of draft rules does not include specific facilities regulations for Cultivation and Product Manufacturing licenses. The Division will address Cultivation and Product Manufacturer Licenses in a specific rulemaking hearing on June 12, 2024.
Facilities Requirements: Testing Facility Licenses
Owners of Testing Facility Licenses may not hold a financial interest in any other Natural Medicine Business license type. The Division may require an inspection of testing facility premises, at no cost to the applicant. The Division will address additional questions related to testing facility licenses in a specific rulemaking hearing on June 24, 2024.
One speaker suggested combining cultivation and manufacturing under one license, given that there may be overlapping knowledge and skill sets. Conversely, one speaker was opposed to allowing dual licensing of healing centers and cultivation, being of the opinion that a healing center operator may not have the technical knowledge to cultivate natural medicine.
Employee and Owner Licenses
Separate from the licensing of the Natural Medicine Business itself, any owner or employee of a Natural Medicine Business must be individually licensed. Applicants for both Employee and Owner licenses must be older than twenty-one, submit to a fingerprint-based criminal background check, and pay licensing and application fees. Applicants may not currently be, nor have been in the previous six months, employed by a regulatory body overseeing the natural medicine industry in Colorado. Applicants must also be in compliance with any child support debts or payments, as required by state law.
Facilitators who will be working in any Natural Medicine Business, including Healing Centers, must obtain an Employee license, or Owner license if applicable.
During the March 20th Rulemaking Hearing, Division officials stated that they intend to provide a streamlined application process for licensed facilitators. Additionally, facilitators will not be subject to fees for Owner and Employee licenses
Owner License
Proposed owners of a Natural Medicine Business must obtain an Owner license from the Division. In addition to the above, applicants for an Owner license must be in compliance with any taxes related to a Natural Medicine Business.
Employee License
Individuals with “unrestricted access to the Licensed Premises of a Natural Medicine Business,” or who “handle Regulated Natural Medicine or Regulated Natural Medicine Product” will be required to obtain an Employee License from the Division of Natural Medicine.
Members of the public urged a more nuanced consideration of when an employee license should be required. Under the current draft, an employee license would be required for anyone who has unrestricted access to a licensed premises. This could become unwieldy when taken together with the definition of “Licensed Premises”, which includes an entire location. Together, the current draft could be read to require after-hours security or repairman to obtain an employee license. If a multi-use space is designated a licensed premise, anyone who has access to the location, even when natural medicine is not being administered or even on the property, would also need an employee license. A better approach would be to require employee licenses only when natural medicine is present on-site, or only requiring an employee license to access restricted areas, such as natural medicine storage spaces.
Financial Interests
The Natural Medicine Code prohibits a person [including entities] from owning a “financial interest” in more than five Natural Medicine Business Licenses, but leaves to regulatory discretion what qualifies as a “financial interest” contributing to the five-license limitation.
Draft rules require applicants for Natural Medicine Business Licenses to disclose all “Owners” with “any financial interest” in the license, along with the following documents.
- A real or personal property lease;
- Secured or unsecured promissory notes;
- Agreements with a Natural Medicine Business regarding intellectual property;
- Management agreement(s) with the Natural Medicine Business; and
- Insurance policy(ies) issued to the Natural Medicine Business.
The rules make clear that a single item on this list does not, on its own, constitute a financial interest for the purposes of restriction. However, if a combination of agreements “shift[s] the financial benefit or risk from the Owner to the person or persons with the agreements with the Natural Medicine Business,” the Department may find a restricting financial interest. Licensed businesses must maintain documentation of all funding sources and may not utilize funds generated by illegal activity.
During the March 20th Work group, a representative from the Colorado Department of Law distinguished the Natural Medicine Divison’s approach to financial interests from similar Marijuana Enforcement Division (”MED”) rules. Unlike MED rules, the NMD will not make a distinction between controlling and passive owners based on percentage of beneficial ownership. The Division is taking a holistic view of what it means to have a financial interest, assessing the totality of the circumstances to determine if a financial interest exists for the purposes of the five-license limitation. The Division also clarified that the Natural Medicine Code defines “person” as including natural-born persons as well as entities.
Multiple attorneys, commenting on their own behalf, urged that the definition of “owner” should be modified to only encompass equity interests. The current definition that includes “any financial interest in a natural medicine business” could deter outside investment by subjecting every investor, no matter how small, to the extensive requirements of an Owner license. By limiting the definition to equity interests, the intent to prevent monopolization of the natural medicine market could be maintained without deterring investment.
The Natural Medicine Code neither expressly permits or prohibits publicly traded companies from participating in the regulated natural medicine market, and DOR has not yet taken a stance on this particular issue. As noted by one commenter, the spirit of the Natural Medicine Health Act is to provide Coloradans access to new mental health treatments in an affordable and equitable manner, which could be at odds with a public company’s fiduciary duty to shareholders. Conversely, permitting public companies to participate in Colorado’s nascent market could help further establish Colorado as a leader in psychedelic business and research, according to a different commenter. Division representatives noted that permitting publicly-traded companies would require a different set of disclosure requirements. Based on the Department’s experience in the cannabis market, requiring disclosure of all beneficiaries of a public company is not feasible.
One commenter urged that real estate trusts should not be barred from owning multiple properties that are licensed as Natural Medicine Businesses. Division representatives clarified that a lease alone would not qualify as a financial interest, and thus a trust owning multiple properties that are leased to Natural Medicine Businesses would not be violating the rules as drafted. One commenter suggested the Division consider whether brands, trademarks, and other intellectual property interests qualify as a financial interest, stating a preference for black-and-white rules.
Priority Review & Community Impact Plans
Regulators are required by statute to prioritize applications for Natural Medicine Business Licenses from applicants with established Colorado residency. Additionally, regulators must establish standards for environmental, social, and governance criteria. In addition to prioritizing applications from Colorado residents, current rules also allow prioritization of applications with one or more owners who have a traditional, tribal, or indigenous history with Natural Medicine; or are veterans. Priority review will also be granted to applicants with a Community Impact Plan showing the business will be located in or serving rural areas; offering discounted or free natural medicine services; or has in place substantial measures to minimize environmental impacts related to the natural medicine market.
Regarding Community Impact Plans, several participants encouraged DOR to give weight to businesses demonstrating Indigenous reciprocity efforts or benefit-sharing, which the Natural Medicine Advisory Board is required to report on. One speaker questioned the wisdom of using community impact plans as a proxy for setting standards for Environmental, Social, and Governance (“ESG”) criteria. According to the speaker, the degree to which a business is capable of fulfilling the expectations of a Community Impact Plan varies based on a variety of factors. For instance, a Natural Medicine Business’ location may dictate the extent to which the business can serve a population previously harmed by the war on drugs. The speaker encouraged DOR to instead adopt ESG standards that could easily be measured and tracked, rather than constraining natural medicine businesses to a more amorphous CIP.