The basics of obtaining a medical marijuana bond in Colorado

Published: Feb 6, 2014
Colorado made news this year by legalizing the use of marijuana for recreational purposes. Effective January 1st, anyone who is 21 or older can buy up to an ounce of marijuana (or a quarter of an ounce if they are from out of state), the only restriction being not to smoke it in public. But Colorado is no stranger to marijuana legalization laws. In 2000, it legalized the use of medicinal marijuana, sold by designated dispensaries.

Jeffrey Beall / Foter.com / CC BY-SA

So what is happening now that both medical and recreational marijuana use is legal? Will they merge into one? For several reasons, the answer is no. For one thing, recreational marijuana will be much more heavily taxed than medical marijuana. This means medical marijuana dispensaries will continue to exist and be subject to different regulations. One of these regulations is the medical marijuana bond. Let’s take a closer look at it.

What is a medical marijuana bond?

While medical marijuana is currently legal in 20 states and Washington D.C., only the State of Colorado requires a medical marijuana bond. Without that bond, medical marijuana dispensaries cannot obtain a license. Medical marijuana bonds are commercial types of surety bonds and work much like sales tax bonds. States require different kinds of businesses to post a sales tax bond to ensure that they will report taxes correctly and will pay them on time.

Just like with other surety bonds, medical marijuana bonds include three parties. The medical dispensary is called the principal and is required to post the bond. The Colorado Department of Revenue is the obligee, i.e. the side requiring the bond. Finally, the third side is called surety. That’s a surety bonds company underwriting the bond, in this way guaranteeing that the obligee will follow the conditions of the agreement. In case of a breach or if the business defaults, the state can file a claim and be financially compensated by the surety.

Dank Depot / Foter.com / CC BY-NC

How much is a medical marijuana bond?

Colorado requires medical marijuana dispensaries to post a $5,000 bond. You need it when you first obtain a license for your business and then each year when you renew it. Think of the bond as a line of credit given to your business – you don’t have to pay the whole amount. Instead, each year you pay an annual premium, which is a certain percentage of the total bond amount.

Your premium is mostly dependent on your credit score. Surety bonds companies always assume a 0% loss ratio when underwriting bonds. When they look at your credit score they try to determine your likelihood of triggering a claim and making them financially responsible. Thus, if you have good credit, your annual premiums will be somewhere between 1% – 5% of the medical marijuana bond. This translates into $50 to $250 per year.

For people with credit issues, it’s a bit different. You will likely pay between 5% and 15% of the bond amount. In rare cases, the percentage can go as high as 20% or a collateral might be needed. That being said, there are some factors which might prevent you from getting a bond. Currently, it’s impossible for people with late child support payments and open bankruptcies to get the medical marijuana bond, and therefore a license.

No matter your credit score, Lance Surety Bonds works with a rich network of sureties, which is the best way of ensuring that you get bonded at the best possible price. Apply online or call us at 877-514-5146. If you have any additional questions, don’t hesitate to contact us!

The following two tabs change content below.
Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.