Are Medical Marijuana Businesses Subject to HIPAA?

Dickinson Wright

Dickinson Wright

With medical marijuana legal in an ever-growing number of states, many businesses in the cannabis industry, particularly dispensaries, continue to wrestle with the question of whether they are subject to the Health Insurance and Portability and Accountability Act’s (HIPAA) Privacy and Security Rule requirements. The bad news is that the answer is, it depends. The good news is that the analysis to find out is below.

HIPAA Background

By way of background, HIPAA was the United States’ first major privacy law passed in 1996. Title II of HIPAA sets policies, procedures, and guidelines to maintain patient security and privacy over protected health information (PHI), and puts notification requirements and civil and criminal penalties in place for breaches under its rules.

PHI is health data created, received, stored, or transmitted by HIPAA-covered entities and their business associates in relation to the provision of healthcare, healthcare operations, and payment for healthcare services.  Protected health information is often shortened to PHI, or in the case of electronic health information, ePHI.

The Confusion

The confusion whether medical cannabis businesses are covered under HIPAA appears to stem from two primary sources. First, much of the confusion regarding medical information and HIPAA arises from the fact that most people assume that the mere mention of someone’s medical condition or health information is protected, regardless of who is disclosing it. That is simply not the case. Not all medical information is protected under HIPAA; only PHI is protected. The definition of PHI, however, is not so clear, and there is a lot to unpack in defining PHI, which will be discussed in more detail below.

The second part of the confusion comes from a common misunderstanding that because HIPAA is a federal law and cannabis is still classified federally as a Schedule 1 controlled substance that federal law does not apply. To put that misunderstanding to rest, one need go no further than the fact that the Internal Revenue Service taxes medical and recreational cannabis sales, so cannabis being a Schedule 1 controlled substance has no bearing on the applicability of federal law, including HIPAA.

Is Your Business Covered by HIPAA?

While the legalization of marijuana is fairly new, HIPAA has been around since 1996, and its same standard rules and conditions apply to the expanding legalization of medical marijuana.

As briefly introduced above, the analysis of whether a medical cannabis business is subject to HIPAA comes down to three central questions:

(1)        Is the business a “healthcare provider”?

(2)        Does the business have “PHI”?

(3)        Is the business storing or transmitting PHI with respect to a “covered transaction”?

Step 1: Is the Business a Covered HealthCare Provider?

Health and Human Services (“HHS”), which is the agency that enforces HIPAA, takes the position that a medical marijuana dispensary may be a healthcare provider because a medical “prescription” is necessary to obtain “treatment”. While most state laws avoid using the word “prescription” to describe the process for a patient to obtain medical marijuana, HHS has looked beyond the actual words of the statute. They look to actual practice and have extended their oversight to medical marijuana transactions. As such, it is reasonable to conclude that medical marijuana businesses, particularly dispensaries, will be “healthcare providers” under HIPAA.

Step 2: Does the Business Have PHI?

For health information to be considered to be PHI and protectable under HIPAA, it must:

(1)       be personally identifiable healthcare information;

(2)       relate to the past, present, or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present, or future payment for the provision of health care to an individual;

(3)        be created or received by a covered entity; and

(4)       be transmitted or maintained in electronic media or any other form or medium with respect to a covered transaction.

PHI broadly includes all individually identifiable health information, which includes, demographic data, medical histories, test results, insurance information, and other information used to identify a patient or to provide healthcare services or healthcare coverage.

As such, whether a cannabis business has PHI is an individual determination that requires a case-by-case assessment of the information the business has. Dispensaries are one of the most likely cannabis businesses to fall within the definition of having PHI because when someone enters a dispensary to obtain medical marijuana, they typically must present a marijuana card, which usually has the person’s name, contact information, and other information to ensure the person is a properly-registered medical marijuana cardholder. This makes that information “personally identifiable”. The information the dispensary obtains about an individual may also include treatment information and the underlying medical diagnosis triggering the need for the medical marijuana recommendation. As for dispensaries that specifically tailor their dispensations to a patient’s specific condition, they will almost certainly meet the first element of PHI.

Because dispensaries are not one size fits all, they cannot be lumped together without looking first at the actual operation of each dispensary individually. For example, cash-only dispensaries that do not have state reporting requirements will likely not transmit or store PHI and, therefore, will not have to worry about HIPAA. Other dispensaries that may be required by state law to transmit PHI, however, may have to comply with HIPAA if the transaction is covered (see Step 3 below). It is also worth noting that some dispensaries unknowingly trigger HIPAA because they employ point of sale software that transmits and stores PHI in the cloud triggering HIPAA. Other dispensaries that store PHI on a hard drive, mobile drive, or disk that transfer the PHI may also trigger HIPAA.

Step 3: Is the Business Storing or Transmitting PHI With Respect to a Covered Transaction?

Lastly, HIPAA only applies to businesses that transmit or store PHI with respect to a covered transaction. This is where the analysis tends to quickly divide those cannabis business entities that are covered by HIPAA and those that are not. A “covered transaction” includes any of the following:

  • A request for payment;
  • Transmission of encounter information;
  • A request for information to a health plan;
  • A request for the review of health care;
  • A request for information about the status of a health care claim;
  • Transmission from a health plan to the patient, bank, business, etc. about payment or payment processing;
  • Transmission from a health plan with explanation of benefits or remittance.

See 45 C.F.R. Part 162.

Because most cannabis businesses are not yet covered by health insurance plans, many assume this disqualifies them from engaging in covered transactions. That is not necessarily the case as demonstrated by the list above.


  1. Do Not Be Naïve. While the applicability of HIPAA to medical marijuana businesses dispensaries is not cut and dry or 100% clear, the issue should be on everyone in the medical cannabis space’s radar. HHS has a habit of reading or interpreting laws to give itself broad powers, as opposed to interpretations limiting its enforcement. It is probably not wise to assume HHS will take a narrow view of its authority, and it is naïve to think the federal law and the health insurance industries will not soon adapt to apply to medical cannabis, especially since there is a lot of money to be made.
  2. Be Mindful.  Cannabis business owners should be mindful of the PHI they are collecting and how they are storing and transmitting that data. For those businesses that are storing and/or transiting PHI, they should employ HIPAA-compliant technologies, including hosting, cloud-storage, and other platforms to protect against a breach and to properly encrypt and otherwise protect the PHI. To the extent they are transferring PHI, they should require those vendors/entities they are transferring PHI to enter into Business Associate Agreements so that all downstream entities with access to PHI are also properly protecting it under HIPAA’s requirements.
  3. Learn the Rules. Specifically, learn what HIPAA’s Security and Privacy Rules require and start taking measures to be compliant. If PHI is collected or stored via the web, work with a trusted IT team to obtain a Secure Socket Layer (SSL) certificate, which indicates that website traffic is encrypted. Review web hosting options for PHI to ensure the business understands the difference between standard web hosting versus HIPAA-compliant hosting. Ensure PHI is treated with extreme care, that patient consent is obtained prior to collecting and retaining such information, and maintain confidentiality of PHI. As the laws and insurance companies adapt, HIPAA-compliant cannabis businesses will have an edge over their competition and allow themselves to more easily take advantage of health care insurance offerings.
  4. Start Now.  There is nothing prohibiting cannabis businesses from starting now to be HIPAA compliant. And while the PHI a business has may not technically be subject to HIPAA now, a number of state laws have data breach notification requirements that protect medical/biometric information. This means that, while the medical information a cannabis business currently has may not be protected by HIPAA, it may be subject to other state law protections.

For examples, states where medical marijuana is legal and also where medical information is protected by state breach notification statute are: Arizona, Arkansas, California, Colorado, Delaware, Florida, Montana, Nevada, New Hampshire, North Dakota, Oregon, and Rhode Island.

Taking steps to secure individual/patient health and medical information is just good business as it will help prevent against a costly data breach. This is especially true when so many communications are web-driven via services such as Yahoo and Gmail, and via text services such as WhatsApp and Facebook, none of which are encrypted for sensitive data. Additionally, many cloud storage providers are similarly not HIPAA compliant—though DropBox does have a business service that is HIPAA-compliant, which requires the business sign a Business Associate Agreement with DropBox. This elevated security, however, comes at a price and the fact remains that most contemporary apps, data centers, SMS services, and email systems are not encrypted and are easily susceptible to a security incident.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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