What a cannabis bond costs and how it is underwritten
A cannabis or marijuana surety bond is, in functional terms, an unsecured credit instrument. The surety extends its credit to the principal in front of the obligee. That one fact governs how these bonds are underwritten and priced.
What the underwriter looks at
- Personal credit of the owners and any indemnitor. It is a factor in the rate and, in some cases, in the decision.
- Business financial statements: balance sheet, income statement and recent tax returns, for bonds with larger penalties or non-standard obligations.
- Cannabis operating experience and licensure history.
- The structure of the obligation. A simple license compliance bond underwrites very differently from a seven figure manuscript reclamation bond.
- Loss history on bonds issued to the principal before, if any.
Two programs, no automatic declines
Surety One runs a standard program for applicants with established credit and clean operating histories, and a non-standard program for applicants with damaged credit, limited credit history or unusual financial situations. The non-standard program carries a higher rate. It exists so that no legitimate cannabis operator is left without access to compliant bonding.
What you will pay
Premium is generally a small percentage of the penal sum. Compliance bonds from $5,000 to $25,000 in penalty are routinely placed at low fixed annual premiums. Larger bonds, $50,000 and above, are typically rated as a percentage of the penalty, and the percentage moves up or down with credit and financial strength. Bonds that contain reclamation or performance obligations are rated individually and almost always involve a financial statement review or a collateral analysis. We do not publish rate ranges for those, because a number quoted without seeing the file would mislead you.
Documents by bond size
| Bond | What we need | Typical turnaround |
|---|---|---|
| $25,000 or less, compliance wording | Cannabis license bond application | Same business day |
| Above $25,000 | Application, personal financial statement from each owner of ten percent or more, current business financials (year end, plus interim if more than four months past year end) | Three to five business days |
| Reclamation, decommissioning or production guarantees | All of the above, CPA prepared statements, the full license application and the bond form | Analyzed individually |
Keeping the rate down over time
A clean bonding record is a competitive advantage. It lets an operator secure larger bonds, on better terms, from more carriers, which is what makes expansion into new license types and new states possible.
- File and pay every cannabis tax on or before the deadline. Tax delinquency is the most common trigger for state bond claims.
- Keep seed to sale tracking disciplined. Gaps between METRC or BioTrack and physical inventory are red flags for regulators and underwriters.
- Document destruction and disposal with photographs, witness signatures and waste hauler manifests. Many cannabis bonds guarantee the cost of lawful destruction.
- Renew bonds 30 days before expiration.
- Keep personal credit clean for anyone who signs the indemnity agreement, and keep quarterly internal financial statements.
- Do not commingle cannabis and other operations in one legal entity. It complicates the financial picture and gains nothing.
Questions
Is the credit check a hard inquiry?
No. It is a soft inquiry and does not affect your credit score.
Who has to sign the indemnity agreement?
The business and, in most cases, each individual who owns ten percent or more. Spouses may be asked to sign on larger obligations.
When is collateral required?
Collateral comes into the discussion when the obligation is large or long tailed, when the wording includes reclamation or performance guarantees, or when credit and financial statements do not support the bond on their own. It is usually partial, not full.
Written and reviewed by C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe, AINS, AIS, CPLP, CICS. Founder of Surety One, Inc., Cannabis Insurance Coverage Specialist, attorney and surety underwriter for more than thirty years. Author of The Contractor's Guide to Surety Bonds. View his cannabis insurance credentials. Last reviewed .
Get your cannabis bond quoted today
Application review and quoting are free, and there is no obligation to buy. Bonds of $25,000 or less are usually issued the same business day.