Schedule 3 sets out the new cybersecurity rules for cannabis users

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As the state’s marijuana reorganization inches closer to reality, operators must face significant changes in how legal cannabis businesses will be regulated.

The downgrading of cannabis to Schedule 3 of the Controlled Substances Act marks a shift towards the medical model of the cannabis industry. With that comes increased enforcement around cybersecurity, data privacy, and compliance – requirements that many users are not ready to meet.

Medical models that attract pharmaceutical investment. They also say their patient data is among the most secure in the United States.

That combination dramatically raises the value of cannabis businesses that collect, store, or process data — whether it’s customer information, consumer health information, or just employee data.

In the world of Schedule 3, cybersecurity compliance is no longer a “nice to have” or an afterthought, it is essential for survival.

What does Schedule 3 mean for cannabis businesses over 280E of conversion

Government-regulated cannabis companies that choose to participate in a government-recognized medical framework may, for the first time, find themselves subject to a complex and overlapping web of state and federal data privacy laws.

This could include the Health Insurance Portability and Accountability Act (HIPAA), the HITECH Act, the Federal Trade Commission Act, state consumer privacy laws, and industry-specific cybersecurity regulations that were never designed with marijuana businesses in mind.

Violations can result in criminal penalties, civil fines, regulatory investigations, notification obligations, credit monitoring costs, and a complete loss of consumer confidence.

Many cannabis operators underestimate this risk because they think that compliance obligations are tied to where their business is located. In fact, data privacy laws are often triggered by the location of the data subject, not the business itself. A single out-of-state patient, consumer, or online transaction can subject a marijuana company to laws it has never tested, let alone complied with.

As the industry grows, participation increases, and government scrutiny increases, ignorance of these obligations will no longer be safe.

Cannabis reform means investment in pharmaceuticals – and competition

At the same time, Schedule 3 opens the door to increased investment in pharmaceuticals and, with it, an aggressive and competitive regulatory environment. Big, powerful players have strong incentives to protect their investments. This includes challenging competitors’ compliance positions.

One of the easiest ways to undermine a competitor is to report non-compliance with cyber security or data privacy laws to regulators. In most cases, any member of the public can file such a complaint.

This represents a significant change in risk.

In the past, failure to comply with cannabis often resulted in state-level penalties or operational problems. In a Schedule 3 scenario, cybersecurity failures can escalate quickly, resulting in massive data breaches, drawing in federal regulators and triggering enforcement actions that extend far beyond cannabis-specific agencies.

Cannabis operators need to adapt to data regulations

The reality is that many cannabis businesses are still growing into basic data management maturity. They are small, independently managed, and may not fully understand what data they collect, where it is stored, who has access to it, or how long it is stored.

Incident response plans are often poorly organized or non-existent. Merchant management, especially point-of-sale systems, delivery platforms, and marketing tools, is often overlooked, despite the fact that third-party violations can create direct liability.

In the world of Schedule 3, these gaps are no longer growing pains; they are existential threats.

How cannabis businesses can adapt to information processes

To be successful, the industry must work to implement fair information practices such as collecting only what is necessary, properly safeguarding, training employees to recognize risks, and responding quickly and transparently when violations occur.

Cybersecurity should be considered a core compliance function, not an IT afterthought. This includes understanding what laws apply, using the right safeguards, doing regular risk assessments, getting the right insurance, and documenting compliance efforts before something goes wrong.

Want to know if you need to worry about cybersecurity and data privacy compliance?

Use this self-assessment tool to assess your risk.

Does my cannabis business need to be concerned about cybersecurity and data privacy?

1. Do you collect any data, including names, addresses, phone numbers, etc., about your employees, vendors, patients, or customers?
2. Do you collect driver’s license numbers, social security numbers, state ID numbers, or passport numbers, directly, through a POS system, or through a verification system?
3. Do you collect credit card numbers, debit card numbers, financial information, or bank account information, directly or through a payment processor?

If you answered yes to any of these three questions, your organization or business has legal obligations related to cyber security and data privacy.

Failure to comply with these obligations can result in criminal penalties, regulatory fines, data breaches, and loss of customer trust.

Does my cannabis business need a cybersecurity and data privacy audit?

1. Do you know where your data is stored, how long it is stored, and how it is destroyed?
2. Do you know who to contact and what to do in the event of a data breach?
3. Do you have enough cyber insurance to cover rebuilding your internal systems and notifying employees, customers, and regulators in the event of a breach?
4. Do you know what fair information practices (FIPs) are, and do you follow them in every step of collecting, storing, using, and destroying data?
5. If a vendor causes a data breach, do you know who is responsible for notification and remediation?

If you answered no or “I don’t know” to any of these five questions, it’s time for a cybersecurity and data privacy audit.

Consider investing in a review of all vendor contracts, including seed sales, point of sale, payment processing, etc., internal data cycle policies, public facing privacy notices, employee training, and insurance to understand your current risk profile and reduce exposure to future events.

Cannabis cybersecurity protects the ethos of the plant

This time represents both a challenge and an opportunity. Cannabis prides itself on patient advocacy, consumer trust, and community-oriented values. Protecting sensitive data is a natural extension of that doctrine. If the industry can mature around its regulatory environment, it can set a standard that measures innovation, access, and accountability.

Schedule 3 changes incentives and risks. Cybersecurity compliance is now a top concern for cannabis businesses that want to protect not only their operations, but also the people who rely on the plant.

Victoria Cvitanovic is a psychiatric and marijuana attorney at Rudick Law Group, PLLC specializing in matters such as transactions, regulatory compliance, government licensing, insurance, procurement, medical malpractice defense, medical board defense and corporate law.