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Marijuana Surety Bonds

Surety Bonds and Legalized Marijuana/Cannabis

Marijuana commercial surety bonds

Describing the marijuana industry as "booming" is a massive understatement. Consider that by 2022, the industry will generate an expected $77 billion in economic impact. To put that in context, West Virginia and Idaho have a GDP only slightly higher than that. Considering how much opportunity exists, it's not surprising that entrepreneurs across the country are eager to get involved in the rapidly expanding marijuana industry.

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 recreational and medical marijuana surety bond as part of the licensing process. The marijuana surety bond provides an additional level of security for the state or municipality.

Any business involved with (or intending to be involved with) the marijuana industry needs to understand how marijuana bond requirements affect their business or could in the future. The experts at Viking Bond Service, an early partner to marijuana-based businesses, are here to supply quality information about marijuana surety bonds. Read on to understand everything you might want or need to know.

What Is a Marijuana Surety Bond?

A marijuana surety bond is a tool a state or municipality can use to help ensure that the company licensed to conduct business in the marijuana industry does so in accordance with set regulations. Where required, the owners of the marijuana-related business must obtain a bond that is compliant with the state regulations. The bond essentially guarantees that the owners will be held financially responsible if they violate the rules governing their business. States require bonds in order to hold marijuana businesses accountable and to incentivize legal, transparent behavior.

As an emerging industry associated with a previously illegal product, government entities have a vested interest in applying close oversight and strict accountability requirements to the marijuana industry. With that objective in mind, legislators have turned to marijuana surety bonds. Bond requirements don't necessarily apply to all marijuana-based businesses in every state with a legalized marijuana industry. However, they're a common requirement and quickly becoming a standard. That's why we suggest any businesses involved with the marijuana industry learn about surety bonds for marijuana businesses even if they're not currently required.

How Do Marijuana Surety Bonds Work?

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. Since marijuana bonds have a punitive purpose, meaning they're designed to discourage certain behaviors, the principal will have to pay for interest and fees on top of whatever amount the surety paid to settle the claim. To put it differently, it costs more to settle a claim through the surety than to settle it directly with the obligee before the surety has to get involved. That's important for anyone with a marijuana bond to understand.

What Are the Parties in Marijuana License Surety Bonds?

Surety bonds for marijuana are like all surety bonds in general, and they are an agreement among these three parties:

  1. Obligee - The state or municipality administering the licensing. The obligee creates the bond requirement and is allowed to file claims against the bond to seek compensation.
  2. Principal - The company seeking licensure to conduct business in the marijuana field. The principal is the actual bonded party and has final financial responsibility for any claims paid to the surety.
  3. Surety - The company that provides a financially backed assurance to the obligee that the principal will act within the applicable regulation. The surety investigates any claims made against the bond and agrees to guarantee payment if the principal does not initially agree to pay.

Once in effect, the marijuana bond 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. Provided that the details of the claim hold up under investigation, the surety automatically settles the claim in full - delivering a financial guarantee that anyone harmed by the principal can both seek and receive justice in the form of a settlement. When the surety settles a claim, the principal must pay that amount back to the surety, along with interest and fees. It's important to emphasize that, unlike an insurance policy, a marijuana bond agreement protects someone besides the bonded party (the marijuana business) while also holding the bonded party directly responsible.

Who Are the Obligees in Cannabis Bonds?

One thing that makes marijuana surety bonds different from most other kinds of bonds is that both states and municipalities often create bond requirements. In Los Angeles, for instance, marijuana dispensaries have to get separate bonds for the state and the city. Understanding what kinds of bonds you're required to have is essential for complying with the law and ongoing financial planning. Reach out to Viking Bond Service for help figuring out your bond requirements. Our team of in-house experts understands the intricacies of various marijuana bond requirements and how they apply to you. There's no better way to comply with bond requirements the right way than with the one-to-one help our team provides.

What is the Purpose of Marijuana Surety Bonds?

The purpose of pot bonds is to create confidence in the marijuana industry as a whole. States are more comfortable granting licenses to marijuana-related businesses — which would have been entirely illegal a decade ago — knowing that they can hold those businesses financially accountable if they break the rules. Bonds give regulators an important tool for oversight. At the same time, they help marijuana business owners demonstrate to regulators that they're willing to take responsibility should anything go wrong. In that way, marijuana commercial bonds are good for both the obligee and the principal. There might be a natural tendency on the part of businesses mandated to obtain and pay for marijuana bonds to resent the requirement. But the reality is that marijuana surety bond requirements make for better businesses. Therefore, bond requirements are likely to become standard across the industry in all states. Anyone currently running a marijuana-related business or planning to should prepare to face bond requirements - probably sooner rather than later.

How to Obtain a Marijuana Surety Bond

Obtaining a marijuana surety bond from Viking Bond Service is a simple process. First, it is required to complete a surety bond application. 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. A bond applicant will also need to submit a credit score check. Additional documentation may be required as well, which the surety will specify upon applications. After that, one only has to pay the bond premium to get a marijuana bond.

Requirements for Marijuana Surety Bonds

Marijuana laws are evolving fast, especially as states build their rules from the ground up. Given that fact, marijuana bonds may not currently be required in every single municipality where marijuana has been legalized in some form. That being said, marijuana surety bonds are required in the vast majority of instances. They are mandated in at least 13 states, including California, Colorado, Nevada, and Illinois. As more states legalize marijuana, the bond requirement is likely to become standard across the country. However, even if marijuana is legalized nationally, the requirements for marijuana surety bonds will remain different in every state. That's why it's important to work with a surety company like Viking Bond Service that understands the exact requirements wherever bonds are required and also issues bonds in states all across the country. You can't avoid a bond requirement - but you can make bonding a stress-free process with the help of the right partner.

How Much Will Marijuana Surety Bonds Cost?

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 their 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 be 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. Some surety agencies will turn someone down for a marijuana bond if they have a credit score below 700 or something like bankruptcy on their financial record. Other agencies, like Viking Bond Service, go the opposite direction and help people with bad credit get the cannabis surety bonds they need, even if they're a higher risk. We can't promise that everyone will be approved. But we will use our abundant resources to ensure that more people get approved at fair rates they can afford. If you have struggled to get bonded elsewhere or worry that credit may affect your bond-worthiness, Viking Bond Service is here to help.

When do Marijuana Bonds Need to be Renewed?

The bond renewal process is quick and easy when you work with Viking Bond Service. Typically, marijuana surety bonds are renewed annually. If they are not renewed, your business license could be suspended or revoked entirely. Our team will give you plenty of advanced notice when your bond needs to be renewed. We will also walk you through each step of the renewal process. Keeping your bond active and your business compliant couldn't be easier when you work with Viking Bond Service.

The actual renewal process works much the same as the initial application process. You will have to undergo another credit check. Underwriters at the surety will also take a look at the present state of your business finances. If your credit score or other financial indicators have improved over the last 12 months, your bond premium will likely decrease. However, it can also increase if your credit score has declined. The bond renews for another 12 months once you pay the new premium prices quoted by the surety agency.

How to Manage Marijuana Bond Costs

Surety bonds cost less than most people expect, but they're still a significant business expense that factors into every year's budget. The bad news is there's no way to avoid paying for a pot bond when it's required. The good news is that business owners can manage this cost to keep it as low as possible. That starts by choosing the right surety agency to work with - one that offers fair bond prices regardless of credit.

Once the bond is active, it's vital to avoid claims at all costs. Claims can be significantly more expensive than bond costs - and remember that the bonded principal has to pay interest and fees on top of reimbursing the surety for the amount of the claim settlement. Therefore, it's imperative to do whatever's necessary to avoid claims. When they're unavoidable, it costs less to settle directly with the obligee (who files the claim) instead of letting the surety settle since they will tack on extra costs. A surety who has to settle claims may also decline to continue bonding the principal, forcing them to seek a bond elsewhere and likely at a higher premium. More alarming, a bad reputation can make it difficult to get a bond anywhere, putting the future of the business in jeopardy. For all these reasons, avoiding claims and avoiding settlements through the surety should be a top priority.

The final way to manage marijuana bond costs is by steadily improving creditworthiness, which will lead to lower bond premiums at every renewal.

Get Started With Your Commercial Marijuana Surety Bond

Obtaining a bond is usually a precondition for obtaining a marijuana business license, so you will want to get started as soon as possible. Viking Bond Service is a nationally recognized surety bond company that issues marijuana surety bonds in every state where they're required. In addition to serving principals everywhere, we make the process of obtaining a bond as seamless as possible. Our application process is straightforward: you get a quote as quickly as possible (often in less than a day), and we have bond experts on hand to answer all your questions. Explore the marijuana bond requirements in your state. And if you don't see your state in the list below, proceed to the next section, where you can request a quote from Viking Bond Service. Our experts will research what bond requirements apply to your business in whatever state it operates, then quote you a fair bond price based on those requirements.

Request a Marijuana Bond Quote:

To get a Marijuana Surety Bond quote or request more information on surety bonds offered by Viking Bond Service, call us at 1-888-278-7389 to speak with one of our Viking Bond Service representatives who will be happy to help you. You can also contact us by completing the contact form on the current page, emailing us, or requesting a quote through the form at the link.

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