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Marijuana Surety Bonds: What You Need to Know

Cannabis Insurance · April 29, 2019

cannabis that is insured through a marijuana surety bondIf you are planning to open your own retail or medical marijuana dispensary, you may be looking to obtain a marijuana surety bond. Marijuana surety bonds provide a guarantee that a dispensary will operate according to applicable state laws and regulations. While not every state requires dispensaries to carry these bonds, bond requirements have sharply risen as more states have legalized recreational and medical marijuana use. Learn more about marijuana surety bonds, what they insure, how they work, and where you can go to apply for a cannabis insurance policy.

How Marijuana Surety Bonds Work

A marijuana surety bond acts as a contract between three parties: the principal (you), the surety (the warrantor), and the obligee (the entity that is bound by the contract and who requires the bond). When you obtain a marijuana surety bond, there is a financial guarantee made to the obligee that the principal (you) will act in accordance to the established terms of the bond. If you fail to fulfill your obligations, the obligee has the right to make a claim to recover any losses. If the claim is found to be valid, the cannabis insurance company will pay out reparation but the amount cannot exceed the amount of the bond. Any claims paid by the principal will then be reimbursed.

Marijuana surety bonds perform several key functions. First, they help verify that the principal is actually qualified for bonding. After accessing the risk of bonding the principal by looking at credit and other factors, the surety can make a decision whether to provide the bond based on the risks involved. Marijuana surety bonds also benefit the obligee in certain ways. If the principal conducts business in a manner deemed unacceptable by the obligee, the obligee can choose to recoup losses, fees, or fines from the principal.

Marijuana Surety Bonds State-to-State

cannabis that is covered by Marijuana Surety BondsMany states where recreational and medical marijuana is legal require businesses to post a marijuana surety bond before they can obtain a license. When purchasing a bond, know that you do not have to pay the full amount of the surety bond at once. Instead, you will be responsible for a premium which typically ranges from 1 to 15 percent of the bond amount. Your credit score and similar factors may also modify the premium amount. The costs and requirements relating to marijuana surety bonds can differ from state to state. The cost of a marijuana surety bond in California is usually $250 or less.

In California, there are three main licensing entities that require surety bonds. The Bureau of Cannabis Control (BCC) is a leading agency that works in the development of regulations for medical and adult-use cannabis. The BCC is also responsible for the licensing of distributors, retailers, micro-businesses, and testing labs. There is also a cannabis licensing entity known as the Manufactured Cannabis Safety Branch who is responsible for regulating manufacturers of cannabis-infused edibles. The third licensing entity in California is the Cal Cannabis Cultivation Licensing, who is responsible for licensing cultivators for both recreational and medicinal use.

Who Needs a Marijuana Surety Bond

If you are planning to open a marijuana dispensary or retail shop, acquiring a marijuana surety bond is usually part of the licensing process. In California, dispensary laws require that all businesses working in the marijuana sector obtain a licensing bond of $5,000. This typically includes all manufacturers, retailers, distributors, cultivators, laboratories, and micro-businesses involved. Certain individual cities and counties have their own laws and regulations regarding the licensing of businesses in the marijuana business. Be sure to check the local regulations in your area.

How to Apply

a cannabis insurance broker shaking hands with a client to discuss Marijuana Surety BondsIf you are looking to apply for a marijuana surety bond so that you can get licensed to legally distribute marijuana, you will first need to locate a reputable and licensed surety bond company that provides these types of bonds. After completing a quote, you will be asked to submit a variety of documents and information. This typically includes a completed surety bond application, bond forms from your local state agency or regulation department, and personal and business background information to confirm that you have no criminal record. You will also need to provide financial documents, such as bank account statements, income, letters of credit, and balances.

Learn More About Marijuana Insurance From MFE

For medical and recreational marijuana dispensary owners in California, the need for a marijuana surety bond is essential. If you are able to successfully meet the requirements of the underwriters, your surety bond will be approved and a bond will be issued. The cost of your bond will primarily depend on your financial strength, credit score, and other financial circumstances. Costs can also vary from insurance carrier to insurance carrier, meaning it is important to shop around for the best quotes. For more information about obtaining cannabis insurance or to apply for a marijuana surety bond, contact the cannabis insurance professionals at MFE Insurance today.

Filed Under: Cannabis Insurance

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