CANNABIS MSB I EST. 2013

The Schedule III Trap: The Monopoly Risk Nobody’s Watching

Industry, National News, News 2026

Whether or not Schedule III rescheduling is implemented this week—or months from now—the cannabis industry needs to start thinking about the long-term implications for operators. Not the unknowns of what federal reform might look like, but the problems we already know exist in state-level regulation and the very real risk that federal action could make them permanent.

As the industry braces for what the future holds, reactions are split. Some celebrate Schedule III as vindication. Others fear federal control will erase state progress. I’m skeptical that rescheduling solves fundamental problems, while deeply concerned it could codify the worst parts of state regulation into federal law.

Specifically: seed-to-sale tracking, and the private company that dominates it.

Metrc LLC controls the cannabis compliance market in 24 states, including California, Michigan, and Colorado. With the rescheduling process now accelerating, there’s a serious risk that implementation could hand this company a federal contract—locking operators into a surveillance regime that exceeds requirements for fentanyl.

I’ve Lived the Operational Absurdity

I was general manager of a 16,000-square-foot mixed-light cultivation facility in California. I’ve pulled employees from actual value-add tasks—defoliating, plant inspections, even maintenance—to tell them to zip-tie plastic tags to 3,000 plants before the state inspector arrived. I’ve had delivery drivers wait in their trucks while Metrc’s servers froze. I’ve rescheduled pickups because a timeout meant we legally couldn’t generate transport paperwork, even though the harvest was ready to go.

Metrc is compliance theater that absorbs enormous resources while failing at its core regulatory purpose.

The operational illogic is stunning. Cannabis plants start as a batch in the vegetative stage—one lot number covering genetically identical clones. Then, when they enter flower, regulators require you to tag every individual plant (California covered tag costs in our license fees, I was ordering 10,000 tags every other month—each order would be $4,500 in states where operators pay directly). At harvest, each of those individually tracked plants is weighed before becoming a batch again.

If the plants are genetically identical and grown under identical conditions, why treat them as individuals for eight weeks? Batch-level tracking achieves every legitimate regulatory goal without the burden of tagging individual plants that will be combined into a single lot at harvest.

The Monopoly Nobody’s Watching

In January 2021, the Missouri Court of Appeals ruled that Metrc’s tag fees—which the company tried to impose after winning a “firm, fixed price” contract—were not required by the software and constituted illegal profit extraction. Missouri now operates the identical software without charging licensees for tags, proving the fees in other states are pure rent-seeking.

But the pricing pales compared to performance failure. On December 9, Orange County Superior Court Judge Lee Gabriel ruled that California’s Department of Cannabis Control “failed to comply” with its legal obligation to use Metrc data to prevent diversion—despite California paying over $100 million for the system over four years. The ruling came in a lawsuit by Catalyst Cannabis Co., which argued fake “burner” distribution licenses were moving millions of pounds to the illicit market while Metrc failed to flag obvious anomalies.

The ruling is particularly damning because California law is explicit: Business and Professions Code Section 26067 requires the tracking database “shall be designed to flag irregularities for the department to investigate.“ Both the state and its vendor had this obligation. Both failed. Operators paid for a system that doesn’t do what the law requires.

In April 2025, Marcus Estes, a former Metrc employee, filed a federal lawsuit alleging the company does not identify questionable activity to regulators despite Metrc’s contract requiring it to “flag irregularities.” According to his complaint, when Estes raised concerns about suspicious accounts, a Metrc executive told him that “flagging irregularities was not our job.” The case faced procedural dismissals, with related litigation ongoing in Florida. But the allegations gained weight this month when Judge Gabriel confirmed California’s system indeed “fails to comply” with the flagging requirement—exactly what Estes claimed Metrc refused to do.

Why More Surveillance Than Fentanyl?

Here’s the question that should haunt every implementation discussion: Why does a plant that has never caused a fatal overdose require individual plant-level RFID tracking when fentanyl—a Schedule II drug killing 70,000+ Americans annually—only requires package-level tracking? Pharmaceutical manufacturers track bottles, not pills. Alcohol distributors track cases, not individual bottles. Cannabis alone is forced to track the raw agricultural product at the individual unit level—tagging plants, not just packages.

The answer isn’t public safety. It’s path dependency.

Colorado adopted RFID-based tracking in 2014. Subsequent states copied Colorado’s framework, often hiring the same consultants. In February 2025, Maine’s Government Oversight Committee unanimously voted to investigate the state’s cannabis director, John Hudak, over conflict of interest: Hudak negotiated a $350,000 contract expansion with Metrc, whose chief strategy officer Lewis Koski was Hudak’s former business partner at consulting firm Freedman & Koski.

Compare cannabis to other controlled substances:

Alcohol (40,000+ deaths/year): Tax stamps on cases
Tobacco (480,000+ deaths/year): Tax stamps on cartons
Opioids (nearly 80,000 deaths/year, Schedule II): Serialized package tracking (bottles), prescription monitoring—but no tracking of individual pills or raw pharmaceutical ingredients

Every other industry tracks the finished product. Cannabis alone is forced to track the raw agricultural product—tagging individual plants before they’re even harvested, not just the packages they’re sold in.

Some states are proving better systems exist. In 2023, Maine implemented Flexible Standardized Batch Tracking—allowing genetically identical plants grown under identical conditions to be tracked in groups. Maine still contracts with Metrc, but uses batch-level tracking instead of individual plant tags, dramatically reducing compliance labor for small cultivators while achieving the same regulatory oversight. The system works. It’s cheaper. And it proves plant-level tagging isn’t a technical requirement—it’s a business model.

Getting Federal Reform Right

Whether Schedule III is implemented this week or months from now, urgency creates risk: the temptation to adopt existing state infrastructure (Metrc) rather than building something better.

If federal implementation adopts Metrc’s model—or awards Metrc a contract—the result will be catastrophic:

Industry-wide compliance costs multiplying as interstate commerce tracking is layered on top of state requirements
Zero competitive pressure (Metrc’s primary competitor, BioTrack, formed a strategic partnership with them in August 2025)
Permanent vendor lock-in making state-level alternatives impossible

Any federal cannabis implementation must include explicit anti-monopoly language:

“The Secretary shall not mandate the use of any proprietary tracking system, nor grant exclusive contracts for cannabis traceability. Any tracking system must conform to open data standards, and states may utilize any system meeting such standards, including batch-level tracking, tax stamps, or state-operated systems.”

Cannabis is moving to the same schedule as Tylenol with codeine. The tracking requirements should match that risk profile—not exceed the surveillance regime for fentanyl while failing to prevent the diversion it’s supposed to stop.

I’m skeptical that rescheduling frees the plant—I believe full decriminalization is the only path to true reform. But if Schedule III is the compromise we’re getting, let’s ensure it doesn’t codify a surveillance monopoly that Missouri courts ruled engages in illegal profit extraction and California courts ruled doesn’t fulfill its legal mandate.

The trap is set. The question is whether we recognize it in time.

Featured image courtesy of Max Jackson

Max Jackson is the founder of Cannabis Wise Guys and specializes in translating between cannabis operations, investment, and public policy. He has provided expert testimony to the Virginia Legislature on preventing consolidation in emerging cannabis markets

Sources

1. CALIFORNIA COURT RULING (December 9, 2025)

Claim: Judge ruled Metrc “does not comply” with state law requiring automatic violation flagging

Sources:

Court ruling coverage:
https://weedweek.com/industry-news/scoop-calif-regulators-metrc-use-fails-to-comply-judge-rules/
California statute (BPC §26067):
https://law.justia.com/codes/california/2022/code-bpc/division-10/chapter-6-5/section-26067/
(Requires system to “automatically alert the department of any unusual or unlikely activity”)

2. WHISTLEBLOWER LAWSUIT (April 2025)

Claim: Former VP alleges Metrc prioritized profits over compliance, told employees violations are “not our job”

Sources:

MJBizDaily coverage:
https://mjbizdaily.com/metrc-allowing-rampant-illegal-marijuana-activity-former-exec-claims-in-lawsuit/
(Cites specific “not our job” internal communications; Estes v. Metrc, California Superior Court)

3. MAINE ETHICS INVESTIGATION (February 2025)

Claim: State investigating cannabis director over conflict with Metrc exec who was his business partner

Sources:

Maine Wire investigation:
https://www.themainewire.com/2025/02/maine-cannabis-chief-investigated-over-potential-conflict-of-interest-with-metrc/
(Hudak negotiated $350K contract expansion with Metrc; Metrc CSO Lewis Koski was his business partner at Freedman & Koski; Maine Government Oversight Committee voted unanimously to investigate)
Freedman & Koski founding (2017):
https://www.bizjournals.com/denver/news/2017/01/05/former-colorado-pot-officials-launch-consulting.html

4. MISSOURI CONTRACT DISPUTE

Claim: Court ruled Metrc illegally extracted profits through tag fees not disclosed in bid

Sources:

Legal analysis:
https://www.jdsupra.com/legalnews/metrc-has-ongoing-dispute-in-missouri-59460/
MJBizDaily coverage:
https://mjbizdaily.com/metrc-missouri-in-court-battle-over-medical-marijuana-fees/
(Metrc removed tag fees from “firm, fixed pricing” bid, then charged operators $1.50-$2.50 per tag)

4.5 COLORADO STATE AUDIT (July 2023)

Claim: Colorado failed to justify sole-source Metrc contract, violated competitive bidding requirements

Source:

Colorado State Auditor Performance Audit:
https://content.leg.colorado.gov/sites/default/files/documents/audits/2255p_marijuana_enforcement_division.pdf

Key finding (Page overview):

“The Department’s documentation justifying its decision to award a sole source contract in 2018 for the ongoing support, licensing, and hosting of the METRC system did not address why METRC was the only system on the market that could meet the Department’s needs and why the Department did not need to pursue a competitive bidding process, as required.”

Significance: Colorado created the Metrc model (2011-2013), then failed to follow competitive bidding requirements when renewing. This is the state that trained consultants (Koski/Freedman) who then advised other states to adopt the same system.