How hemp entered the commodity handler program
Colorado did not write a new bond for hemp. It placed the crop inside two agricultural programs that already existed, which is why the instrument a hemp operator files is called a commodity handler bond or a commodity dealer bond (the Department's license name for a dealer is farm products dealer). The Commodity Handler Act and the Farm Products Act protect Colorado producers who sell on credit. The Department of Agriculture's Inspection and Consumer Services Division licenses the buyers, inspects them and holds their bonds. When industrial hemp became a lawful crop, the Department treated unprocessed hemp as a farm product and unsterilized hemp seed and grain as a commodity. A business that purchases unprocessed industrial hemp for processing and resale, or that stores it for others, therefore needs one of these licenses. The Department has said plainly that hemp dealers and handlers will be able to obtain a bond, and it asks that the surety use the Department's approved bond form.
Which license classes must file a bond
| License class | Bond |
|---|---|
| Small volume dealer (no more than $20,000 in annual purchases and no single purchase above $2,500) | No bond |
| Farm products dealer with a cash buyer declaration | No bond |
| Farm products dealer buying on credit | 2% of annual purchases, $10,000 minimum |
| Commodity handler | 2% of annual Colorado commodity purchases, $10,000 minimum, $1,000,000 maximum |
Licenses run for one calendar year, expire on the last day of December and are not transferable. The farm products dealer license fee is $275. The commodity handler license fee is $150 plus a commodity inspection fee of $50 to $750 scaled to annual purchases. A handler that stores commodities for others is a warehouse, which carries further inspection fees and financial requirements, and the Department asks those applicants to call before they apply.
Who is exempt
Hemp farmers do not need a license under these Acts to sell what they produce. Restaurants, retail grocery stores, small feedlots and any person or company purchasing industrial hemp for its own use are also outside the program. Out of state dealers and brokers are inside it when the transaction happens in Colorado.
What the bond guarantees
The bond secures payment to the owners of farm products and commodities. When a producer files a complaint, the Department investigates whether the licensee is in default of an outstanding obligation to the owner, and an unpaid default becomes a claim on the bond. The Department's own rules require credit sale contracts to warn producers that the bond may not completely protect them from loss if a dealer fails. That warning is accurate, because the penal sum is two percent of annual purchases. The bond is a floor under the market and not a substitute for knowing your buyer.
Why a bond is the better instrument than a letter of credit
Part 5 of 8 CCR 1202-11 lets a licensee file an irrevocable letter of credit in place of a surety bond. We advise against it for nearly every hemp business. A bank issues a letter of credit against your borrowing capacity or against cash, dollar for dollar, and charges a fee on top. The capital is frozen at exactly the moment a processor needs it to pay for harvest. The beneficiary can draw on a letter of credit on demand, with no investigation and no opportunity to cure. A surety bond costs a small fraction of the penal sum each year, leaves your bank lines untouched, and puts a professional claims process between a disputed complaint and your money. For a first year hemp buyer with no banking relationship willing to touch the class, the bond is often the only practical route to a license.
How we underwrite it
At the $10,000 minimum we write the bond on the application and a soft inquiry credit report for each owner. Above $25,000 we add business financial statements and look at the payables cycle, because the claim scenario is a buyer that cannot pay its farmers after a price collapse. Colorado hemp has lived through one of those, and underwriters remember it. Strong contracts, prompt payment history and adequate working capital are what move the rate.
Colorado marijuana businesses
Colorado repealed its state marijuana license bond in 2016. The history, and what municipalities may still require, is on the Colorado cannabis bond page.
A bond is not insurance for the hemp business
A surety bond is a three party agreement among the principal (your business), the obligee (the agency or county) and the surety. It protects growers and the public, not the principal. If the surety pays a valid claim, it recovers the payment from the principal and the individual indemnitors under the general indemnity agreement signed at issuance. That is why underwriting looks at credit and working capital, and why paying growers on time and testing early are the cheapest risk controls a hemp operator has.
The federal backdrop
The Agriculture Improvement Act of 2018 removed hemp, defined as Cannabis sativa L. with no more than 0.3 percent delta-9 THC on a dry weight basis, from the Controlled Substances Act and let states run their own production plans under USDA approval. Congress revised the federal definition in late 2025, with changes scheduled to take effect in November 2026 that narrow the market for intoxicating hemp derived products. Fiber, grain and compliant cannabinoid operations continue, and so do the state and county bond rules described here. Processors of finished cannabinoid products should review their product lines with counsel.
What to send us
- The completed online application, or the cannabis and hemp license bond application (PDF), with the name, home address and Social Security number of each owner
- The bond amount the agency or county has given you, and its bond form if it uses its own
- For bonds above $25,000: a personal financial statement from each owner of ten percent or more and current business financial statements
Four steps to a filed bond
- Apply. Online in a few minutes. Review and quoting are free.
- Confirm the amount. We check the penal sum and form against the current rule.
- Bind. You approve the quote, pay the premium and sign the indemnity agreement.
- File. We deliver the executed bond to you, and to the obligee where it accepts electronic filing. Originals are sent overnight when a wet signature is required.
Questions? Call toll free (800) 373-2804, reach an underwriter at (919) 859-5294 or write to Cannabis@SuretyOne.com.
Primary sources
Official texts behind this page. We link to citation based addresses on legislature, code and agency sites because those are the least likely to move.
- Colorado Department of Agriculture, Farm Products and Commodity Handler Programs FAQ
- Code of Colorado Regulations, 8 CCR 1202-11 (Colorado Secretary of State)
- Agriculture Improvement Act of 2018, H.R. 2, 115th Congress (Congress.gov)
- 7 U.S.C. § 1639o, hemp definitions (Office of the Law Revision Counsel)
Regulator: Colorado Department of Agriculture, Farm Products and Commodity Handler Programs. Confirm the current amount and form with the regulator before you file.
Colorado hemp bond questions
Is a hemp operator a commodity handler or commodity dealer in Colorado?
Yes, when it buys hemp it did not grow. The Department of Agriculture classifies unprocessed industrial hemp as a farm product and hemp seed and grain as a commodity, so a processor, broker, wholesaler or storage operator that acquires hemp from Colorado producers is a dealer or handler and must file the bond.
Do I need a bond to buy hemp from Colorado farmers?
Yes, if you buy on credit as a farm products dealer or operate as a commodity handler. Small volume dealers and dealers with a cash buyer declaration do not file a bond.
How is the Colorado hemp dealer bond amount calculated?
Two percent of annual purchases, with a $10,000 minimum. The commodity handler bond is capped at $1,000,000.
Do Colorado hemp growers need a bond?
No. Farmers selling their own production are not licensed under the Commodity Handler or Farm Products Acts.
Should I post a letter of credit instead?
We do not recommend it. A letter of credit ties up cash or bank credit for the full amount and can be drawn on demand. A bond costs far less to carry and preserves your working capital.
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 .