Cannabis and marijuana bond glossary

Surety bond

A three party agreement in which a surety guarantees to an obligee that a principal will perform an obligation. It is not insurance for the principal.

Cannabis surety bond (marijuana surety bond)

A surety bond that a licensed cannabis or marijuana business posts as a condition of its license. The two names describe the same instrument.

Principal

The cannabis, marijuana or hemp business that must post the bond. The licensee or license applicant.

Obligee

The government authority that requires the bond and may claim against it: a cannabis control board, a department of agriculture or revenue, a county or a city.

Surety

The insurance company that issues the bond and stands behind the guarantee. It must normally be admitted in the state that requires the bond.

Penal sum (bond amount, bond penalty)

The maximum amount the surety can be required to pay under the bond. The premium is a small fraction of the penal sum.

Premium

The price of the bond, paid by the principal, usually each year. It is not the penal sum and it is not refundable once the bond is filed.

General indemnity agreement

The contract signed when a bond is issued that obligates the business and its individual owners to reimburse the surety for any loss, expense or legal fee.

Indemnitor

A person or company that signs the indemnity agreement. Owners of ten percent or more are normally indemnitors.

License and compliance bond

A bond guaranteeing that the licensee will follow the cannabis statutes and rules, such as California's $5,000 bond.

Tax bond

A bond guaranteeing payment of cannabis taxes, such as the Anchorage marijuana sales tax bond.

Reclamation bond

A bond guaranteeing the cost of cleaning up and restoring a cultivation site, such as Oklahoma's commercial grower bond.

Performance bond

A bond guaranteeing that the licensee will build, operate or produce as promised, such as Florida's Medical Marijuana Treatment Center bond.

Continuous bond

A bond with no expiration date that stays in force until the surety cancels it on written notice.

Non-cumulative (aggregate) liability

A term meaning the penal sum is the most the surety will ever pay in total, no matter how many years the bond runs or how many claims are made.

Cancellation notice

The written notice, usually 30, 60 or 90 days, that a surety must give the obligee before its liability ends.

Rider

A short amendment to a bond that changes the amount, the name or the address without issuing a new bond.

Obligee bond form

The exact bond wording an agency, county or city requires. Underwriting depends heavily on that wording.

Collateral

Cash or a letter of credit held by the surety as security when credit or financial strength alone does not support the bond.

Non-standard program

Surety One's program for applicants with damaged or limited credit. It carries a higher rate and avoids an automatic decline.

Soft inquiry

A credit check that does not affect the applicant's credit score. It requires the owner's name, home address and Social Security number.

Fidelity bond (commercial crime policy)

Two party coverage that protects the business against theft by its own employees. The carrier absorbs a covered loss.

Hemp

Cannabis sativa L. with a delta-9 THC concentration at or below the federal legal limit. It is regulated by agriculture departments.

Commodity handler and commodity dealer

Colorado license classes for businesses that buy or store farm commodities, including hemp, and that must post a bond.

Read how these terms apply in practice on types of cannabis and marijuana bonds, cost and underwriting and the state requirements.