More states are legalizing the possession and use of marijuana for both medical and recreational purposes. Each state creates regulations to govern the actions of the companies that conduct business in the marijuana industry. These regulations set rules around the cultivation and dispensing of marijuana and proper payment of applicable taxes and fees. In some cases, regulations define rules regarding supply, facility construction, reporting and record keeping.
Some states and municipalities have opted to require a surety bond as part of the licensing process. The marijuana surety bond provides an additional level of security for the state or municipality.
The marijuana surety bond is a tool a state or municipality can use to help ensure the company licensed to conduct business in the marijuana industry does so in accordance to the set regulations. Marijuana surety bonds, like all surety bonds in general, are an agreement between three parties:
The marijuana bond, once in effect, makes the surety financially liable for actions taken by the principal that are in contrast to the laws and regulations covered by the surety bond. If the principal does conduct some business in a manner unacceptable to the obligee, the obligee could go to the surety to claim on the marijuana bond to help recoup any losses or cover any fines or fees charged to the principal for those actions.
Marijuana surety bonds provide several benefits to the obligee. The first benefit is the additional scrutiny given to the principal, the company to be bonded. In addition to the obligee’s considerations, the surety will also verify that the principal qualifies for bonding. The surety will assess the risk of bonding the principal by examining the credit standing, and at times the financial standing, of the company and its owners. The surety will only be willing to provide the bond if the surety can assess that the risk is within tolerances. This provides an additional check on the principal that can be beneficial to the obligee.
Marijuana surety bonds also provide an additional benefit to the obligee. If the principal conducts business in a manner unacceptable to the obligee, with regard to laws and regulations, the obligee can claim on the bond to help recoup any losses, fines or fees due from the principal. Rather than seeking to collect directly from the principal, the obligee would contact the surety with a claim notice. The obligee can seek an amount up to the dollar amount of the bond, that is, up to $5,000 on a $5,000 marijuana bond. Once the surety determines the validity of the claim, the surety will pay the claim. This can result in a more expedient recovery for the obligee.
When the surety pays a claim on the bond, the principal is ultimately responsible for the amount expended by the surety to satisfy the claim. After paying the claim, the surety will look to recover the funds from the principal.
Marijuana surety bond quotes are typically presented as a percentage of the required bond amount. The state or municipality where the license is being sought will determine the required bond amount. The surety reviews an applicant’s credit and at times, financial standing when determining the quoted rate. Marijuana surety bonds can be as low as $250. The cost usually falls within a range from 1.5% to 6% of the required bond amount. This is a general range for marijuana surety bonds and quotes can come in outside of this range. Credit standing does impact the cost of the bond, generally the better the credit, the lower the cost of the bond.
Obtaining a marijuana surety bond is a simple process. A completed surety bond application is required at first. At times, a financial statement may be required to get the lowest quote available for the individual applicant. The surety bond agent will make it known if a financial statement is needed. Other than that, payment of the bond premium is all that’s required to get a marijuana bond.
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