Yeah as for the "psych label" I think there's a major tendency these days to jam anything that sounds remotely psych adjacent into the "psych" category just because it's cool again via the Australian psych bands.
From the little I've heard of Jim Sullivan, I could see slotting him under psych-folk more than psych-rock. IMO psych-folk is one of those practically fictional genres that seems to have no solid aesthetic basis. Is it folk music with psychedelic instrumentation, or straight folk with "trippy" lyrics? Some would apply the term to anything from the Byrds or Donovan, others would reserve it for more out there artists like Linda Perchats. For the life of me I can't seem to figure out why Dylan himself isn't considered part of this genre, since he is both a massive influence on folk singer-songwriters and psych ones. Perhaps psych-folk is really just post-Dylan weirdo artists, but at that point who isn't a post-Dylan weirdo?
Anyways, on this particular stuff Sullivan's vocals remind me more of mainstream folk rock than anything else, so it would really test my application of the label. Almost sounds like the U.F.O. single could a big radio hit if he wasn't caught up on his x-files BS. Seems like a fun balance though, and the exact type of record labels like LITA thrive making public, something that can't get out of its own way in the best way possible. It doesn't feel like it's set out to be psych music, but just happens to have been steeped in enough of the influences to seem that way.