Surety bonds guarantee your cannabis business will fulfill the terms of its contracts and pay its suppliers. Many states require a surety bond as part of their licensing requirements.
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:
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.
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
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.
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.