Cannabis Bonds

Cannabis Bond

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Cannabis bonds—also referred to as marijuana bonds—are legally required to complete the marijuana-related business licensing process. Without a cannabis bond, a cannabis business can’t operate legally in their state. 

A cannabis bond provides protections for the state if the bonded cannabis business doesn’t live up to the terms of the bond. 

Keep reading for more insight into what cannabis bonds are, why you may need a cannabis bond, and how cannabis bonds work. 

What are cannabis bonds?

Cannabis bonds are a type of surety bond and cannabis-related businesses must have one before they can engage in any business activities relating to cannabis such as the operation of:

    • Dispensaries

      • Cultivation facilities

        • Processing facilities

          • Resting laboratories

            • Pharmacies

              • Transportation of cannabis or cannabis related products

              How cannabis bonds work varies by state. For example, in some states a cannabis bond acts as a sales tax bond and guarantees that the business remits to the state the sales taxes collected from sales they make. 

              As of 2022, 37 states and territories including the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands have approved some form of legalized marijuana either for recreational or medical purposes—or both. Certain states require cannabis bonds to help regulate the cannabis industry as these bonds guarantee that business license holders follow the rules and regulations required to operate in their industries. 

              Why you may need a cannabis bond

              If you run a business that has dealings in cannabis then the odds are your state requires you to take out a cannabis bond that ensures you’re following the rules and regulations that are required by your license. 

              As briefly noted, not all cannabis bonds are the same. While some require the principal (aka the cannabis business) to provide accurate record keeping and provide sales tax, other cannabis bonds guarantee that the business will grow and provide enough product. A cannabis bond may also guarantee that the businesses’ products are safe and meet certain quality standards. These are just a few main examples of what the intent can be behind cannabis bonds. It’s worth noting that a cannabis bond may require the principal to meet just one or multiple of these surety bonds standards. 

              Not sure what the cannabis bond requirements are in your state? We can help you get all of your bond ducks in a row!

              Alongside states, some cities also require surety bonds that are separate from the one required by the state. This is a requirement by cities in states like California, Nevada, and Colorado.

              How a cannabis bond works

              With any type of surety bond, including a cannabis bond, there are three main parties involved in the bond. 

                • The Obligee. This is the state agency requiring the cannabis business take out the cannabis bond

                  • The Principal. The cannabis business that is purchasing the bond

                    • The Surety. This is the company that underwrites and issues the bond to the principal

                    Your specific cannabis bond will outline the specific terms that the principal has to abide by in order to be licensed. These are a few examples of these terms:

                      • Collect, report, and remit sales taxes to the state

                        • Comply with the rules and regulations governing the cannabis industry in their state

                        You may be required to renew your cannabis bond on a biennially or annual basis, again it’s important to confirm your state’s specific requirements. You may need to only keep your cannabis bond in force until you meet certain obligations. For example, in some states a cannabis bond is only required until the principal files their first business tax return. Other states allow you to lower the bond amount if you meet certain benchmarks. Research the requirements of your state closely to make sure you understand the exact standards you need to follow. 

                        If someone does file a claim against your cannabis bond, that’s because they believe that you (the principal) didn’t live up to the terms of the surety bond. Any party that suffered a financial loss because the principal didn’t live up to the terms of the bond is allowed to file a claim against the bond. That’s not a guarantee that their claim will be approved, but if it is then the surety has to pay the claimant. This isn’t a get out of jail free card for the principal though. The principal is required to reimburse any surety payments that the surety paid to claimants on their behalf. 

                        Because all states—and some cities—have such diverse cannabis bond requirements, it can be helpful to connect with an expert in this space. We’re happy to walk you through your state requirements and how to get a cannabis bond!

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