Cannabis and marijuana surety bond questions and answers

Yes, they are the same thing. It is a financial guarantee that a licensed cannabis business posts in favor of a government authority. The bond guarantees that the business will follow the cannabis laws, pay its cannabis taxes or restore and decommission its site, depending on the jurisdiction. If the business fails, the authority can claim against the bond and the surety recovers what it pays from the business.

State agencies require them in Alabama, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Louisiana, Massachusetts, Montana, North Dakota, Ohio, Oklahoma, Utah and Vermont, and New York's medical program has used one. In Alaska, Michigan and Nevada the requirement comes from cities. California counties and cities add many local bonds. Colorado repealed its marijuana license bond in 2016 but requires a surety bond from hemp operators licensed as commodity handlers and commodity dealers, and Georgia, Ohio and several California counties bond hemp businesses as well.

Compliance bonds of $25,000 or less are usually issued the same business day we receive a completed application. Larger bonds that need financial statements generally take three to five business days. Bonds with reclamation, decommissioning or production language can take longer because the wording is analyzed individually.

No. Personal credit is one input among several and the inquiry is a soft pull that does not affect your score. Damaged credit routes the application to our non-standard program. No applicant is automatically declined.

No. A bond is a guarantee to the state. Liability insurance protects the operator against third party claims. Most operators need both, and workers' compensation as well.

No. They are two names for the same surety bond. Statutes in states such as Oklahoma, Florida, Arkansas, Massachusetts and Montana say marijuana, Michigan spells it marihuana, and states such as California, Illinois, Ohio and Vermont say cannabis. The obligation, the underwriting and the application are identical.

You pay a premium, which is a small fraction of the penal sum. Compliance bonds from $5,000 to $25,000 are placed at low fixed annual premiums. Bonds of $50,000 and above are rated as a percentage of the penalty that moves with credit and financial strength. Bonds with reclamation or performance obligations are rated individually.

Generally yes. Each license triggers its own bond, even within one state. A California operator with cultivation, distribution and retail licenses posts three $5,000 bonds. Oklahoma requires at least $50,000 for each grower license. Ohio is an exception for dual use licenses, where one bond covers medical and non-medical activity.

The surety notifies the obligee, typically with 30 or 60 days written notice. If a replacement bond is not filed before the cancellation date, the licensing authority will move to suspend or revoke the license. Renew at least 30 days before expiration.

In most cases, yes. A prior claim complicates underwriting and may require collateral or the non-standard program, but it is not an automatic bar. Disclose it on the application. A concealed claim discovered later is a much harder problem than a disclosed one.

It depends on the form. Many bonds are continuous until cancelled, some track the license term, and a few discharge automatically when the underlying obligation is fulfilled. The term is stated on the bond form.

In some jurisdictions. Illinois reduces the cultivation center bond by $500,000 per milestone, Florida allows a reduction from $5,000,000 to $2,000,000 at 1,000 patients, and Connecticut's operation bond steps down after one and three clean years. A reduction needs a written request to the obligee and the surety's consent.

It is the contract you sign with the surety when the bond is issued. It obligates the business and, in most cases, each individual owner of ten percent or more to reimburse the surety for any loss, expense or legal fee it incurs on a claim. Treat it as seriously as a personal guarantee on a commercial loan.

Yes. We write county hemp permit bonds in California, commodity handler and dealer bonds in Colorado and hemp processor bonds in Georgia and Ohio, and we review new state programs as they come online.

C. Constantin Poindexter, founder of Surety One, Inc. He holds the Cannabis Insurance Coverage Specialist designation, is a licensed attorney and has underwritten surety for more than thirty years.