Surety bonds for cannabis businesses

Even the most reliable marijuana establishment could suddenly lose a valuable employee, or run out of needed materials due to a supply chain disruption.

Surety bonds provide a financial guarantee that your suppliers (the obligee) won't lose money if your cannabis business (the principal or bonded party) unexpectedly can't fulfill its obligations. It also guarantees your business will comply with your state's cannabis and medical marijuana regulations and requirements.

Specifically, a surety bond can provide coverage for:

• Failing to fulfill a contract
• Failure to comply with standards or regulations
• License and permit requirements
• Employee theft

This policy is strongly recommended for any cannabis business due to the costly nature of your products. It may also be required to obtain a license in your state.

It's important to remember that a surety bond is more like a line of credit. In fact, your business is responsible for paying back any amount paid by a bond to a client.

If a cannabis crop becomes contaminated and is unable to be sold, some laws, like in California, prohibit a grower from throwing the product away. However, a surety bond would allow the California cannabis grower to cover the disposal costs while staying in compliance with the law.

Some cannabis businesses may need license bonds or permit bonds to licensure or to get a permit for a certain type of work.

For example, in Arkansas, cannabis dispensaries must show a $100,000 surety bond and a $100,000 permit bond, while medical marijuana dispensaries in Illinois are required to have a $50,000 surety bond. But in Colorado, there are no bond requirements.

Each state determines whether cannabis is legal and to what extent. Sometimes local municipalities will have their own requirements. States can issue licenses for medical cannabis businesses, mandate certain types of insurance or bonds during the licensing process, or set limits on how many businesses in the cannabis industry can operate in each area.

Several states require different types of marijuana businesses—retailers, processors, testing laboratories, cultivators, and distributors—to carry different types of surety bonds in varying amounts for each license they maintain.

A few examples include:

Arkansas: Dispensaries need a $200,000 proof of assets or $100,000 surety bond and $100,000 performance bond, and cultivators need a $1 million proof of assets or surety bond and $500,000 performance bond

California: $5,000 surety bond

Florida: $5 million performance bond, or $2 million performance bond for a medical marijuana treatment center serving at least 1,000 patients

Illinois: Cannabis cultivation businesses are required to carry a $2 million surety bond and dispensaries a $50,000 surety bond

Massachusetts: Must have a surety bond equal to the business's license fee

Oklahoma: $50,000 surety bond for commercial medical marijuana growers, or proof of five-year land ownership

Additionally, your dispensing organization may be required to show proof of assets or a medical marijuana surety bond in Connecticut and Georgia to obtain your marijuana license or permit.

While surety bonds offer some protection for small business owners and their customers from financial loss, they don’t protect your own business against damages or injuries.

For peace of mind, owners of cannabis businesses should also consider the following types of insurance:

General liability insurance protects against the most common business risks, such as customer slip-and-fall injuries. Some states require this coverage for cannabis businesses.

Commercial property insurance helps businesses recover financially from fires, theft, vandalism, and other business property damage or loss.

Product liability insurance helps pay for lawsuits related to your products, including CBD and medical marijuana, such as a claim that a faulty battery in an e-cigarette started a fire.

Commercial auto insurance covers the legal costs and property damage from accidents involving your cannabis business's vehicle. It also covers vehicle theft and vandalism.

Workers' compensation insurance is required in most states for cannabis businesses with employees. It also protects sole proprietors from work injury costs that personal health insurance might deny.

Are you ready to safeguard your cannabis business with a surety bond? If you run a dispensary, you can complete Insureon’s easy online application to get free quotes from top U.S. insurance carriers. For other cannabis businesses, you can call our dedicated agent to find insurance and bond quotes for your business.

Once you find an insurance solution that fits your bonding needs, you can begin coverage in less than 24 hours.