Cannabis Bonds

What are Cannabis Bonds?

Cannabis bonds, also known as California Cannabis Bonds, are a requirement for entities seeking licensure under the Medicinal and Adult-Use Cannabis Regulation and Safety Act in California. These surety bonds, generally set at $5,000, are essential for most licensing categories, although some localities may require higher amounts.

California cannabis surety bonds are underwritten individually, meaning the cost varies based on the applicant’s credit score. Business owners with strong credit scores may secure bond rates as low as 5 percent of the total bond amount. For instance, those with excellent credit might pay only $250 annually for a $5,000 surety bond.

The state acts as the obligee for these bonds, ensuring that business owners comply with regulations. California cannabis surety bonds remain in force from their effective date and renew annually unless canceled. Bond cancellation typically requires 30 days' written notice to the obligee.

Each surety bond involves three parties: the principal (your business), the obligee (the government), and the surety (the third party providing the bond). The surety guarantees to the obligee that the principal will fulfill their contractual obligations.

How to Obtain Cannabis Bonds

Before obtaining a cannabis bond, business owners must undergo a credit check. This process involves a simple one-page application that can be submitted online. If the credit check is favorable, the bond can be purchased instantly. If not, the application will undergo underwriting approval, possibly requiring a higher premium or a cosigner.

The requirements for California cannabis bond applications are detailed in the Business and Professions Code, section 19322. These bonds are a necessary aspect of operating within the cannabis industry.

Benefits of Cannabis Bonds

Cannabis bonds offer three main benefits:

1. They provide a guarantee to the obligee that the lowest bidder will complete the contract conditions at the quoted price.
2. They assure obligees (business owners) that the contractor can financially handle the risks involved in the project.
3. They ensure that costs are compensated if the contractor cannot manage any additional expenses associated with the project. Cannabis bonds also guarantee payment to suppliers for their goods, regardless of the contractor's financial stability.

In California, all cannabis-related businesses are required to carry a bond. These $5,000 surety bonds must be purchased for each cannabis license held by the business owner. Without a bond, businesses will violate the Bureau of Cannabis Control’s requirements.

Top Tips for Choosing Cannabis Bonds

Good Surety Knowledge and Relationships: Work with an insurance broker who understands the industry and keeps up with local, regional, and national trends. This knowledge, combined with strong professional relationships with surety underwriters and industry decision-makers, is invaluable.

Tried and Tested Processes: A seasoned insurance broker will have established processes to handle every step of the bonding process. These processes should be transparent and demonstrate the broker's trustworthiness.

Highly Rated Within the Industry: Surety bond companies are rated on a grading scale, with the highest being A++. However, not every situation requires the highest rating. Ensure your agent meets the minimum rating requirement for your specific needs.

Specialization in Cannabis Bonds: Choosing a broker with extensive knowledge of the cannabis industry and its regulations guarantees significant value to your partnership.

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Our in-house bond department has over 25 years of experience, and no bond is too small or large for us to handle.

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If you need a quick bond for your cannabis business, fill out our cannabis bond application [HERE] and submit it to info@daveh61.sg-host.com.