The Ultimate Guide to Marijuana Surety Bond Requirements for Dispensaries

Published: Jan 26, 2015
Marijuana-Dispensary-Bonds

As medical marijuana is legalized in more states, questions are being raised about dispensary licenses. Recently, for example, Massachusetts approved the first medical marijuana dispensary in Boston, but as has been pointed out: the licensing process has slowed down significantly.

Given that 23 states have legalized medical marijuana, and four states have legalized it for recreational use (Colorado, Washington, Oregon, and Alaskа), some states have begun introducing medical marijuana bonds in order to regulate this type of business. So which are the states that require businesses to post a marijuana surety bond and what does that mean?

Obtaining a medical or retail marijuana surety bond in Colorado

 

Like any other surety bond, a marijuana surety bond (where applicable) is connected to the process of obtaining a medical marijuana dispensary license. Currently, such a bond is required only in the state of Colorado. A number of other states also require bonds in order to issue a dispensary license, but these are a different story and will be reviewed below.

Surety bonds’ main role is to guarantee and protect the government (the obligee) if a business (the principal) should participate or be involved in fraudulent activities. Depending on their type, surety bonds can also protect recipients of services or goods from a business for the same reasons. So when a business obtains a surety bond, it pays a fraction of the whole sum of a surety bond to the surety bond company. If for any reason a claim is filed against the business and is deemed valid, the surety bond company pays out part or the whole sum of the surety bond to the side that filed the claim.

In the case of a medical marijuana bond in Colorado, it’s quite similar to a sales tax bond, which other types of businesses have to post. According to state legislation, the purpose of the bond is to guarantee that all designated and approved medical marijuana dispensaries will accurately report their taxes and pay these in due time.

The bond, in the amount of $5,000, has to be posted to the Colorado Department of Revenue and must be renewed on an annual basis, along with the license. And if you are selling marijuana for recreational purposes, instead of medically, you will have to obtain a retail license marijuana bond in the same amount.

Additionally, if your dispensary is in the city of Denver, you will have to post an additional City of Denver medical marijuana surety bond in the amount of $5,000. Or, alternatively, a retail marijuana license bond in the amount of $20,000.

Medical marijuana related surety bonds across other states

Medical-Marijuana-DispensariesConnecticut, Florida, Illinois, and Nevada are the other four states which require posting a bond as part of obtaining a medical marijuana dispensary license. However, there’s a difference in the type of bond. Unlike in Colorado, the bonds in these four states are either a performance-type or, as in the case of Nevada, a more general surety bond. Here are the specifics:

Connecticut

In order to receive a medical marijuana producer license, businesses in Connecticut must obtain a bond in the amount of $2 million and post this to the Department of Consumer Protection (DCP). The bond is a type of performance bond, since according the DCP it concerns the construction of a production facility. At the same time it is also similar to a forfeiture bond, as it is irrevocable and its full amount must be paid out by the surety in the case of any claim.

Furthermore, once a production facility has been constructed and is deemed fully operational, a second bond in the amount of $1.5 million must be posted for the operation of the facility. This, too, is similar to a forfeiture bond, though its penal sum may be reduced if certain milestones have been met.

Florida

Florida state’s requirements for receiving a medical marijuana dispensary license are even more strict. For now, only five professional nurseries in the whole state of Florida will be allowed to open and operate under Florida Department of Health’s Compassionate Medical Cannabis Act of 2014. These will be allowed to grow, process, and distribute cannabis and cannabis oil extracts. Conditions for applying as one of those five nurseries include:

  • At least 30 years of continuous operation.
  • A certificate of registration from the Florida Department of Agriculture that allows cultivation of more than 400,000 plants.
  • Provide appropriate infrastructure and personnel and maintain strict accountability for materials, products and byproducts.
  • Document financial ability to operate as well as post a $5 million performance bond covering the two-year licensure period.

Illinois

Medical-MarijuanaIllinois’ requirements for obtaining a medical marijuana dispensary license are similar to those in Connecticut. Businesses who wish to open a cultivation center, must post a $2 million performance surety bond to the Department of Agriculture under the Medical Cannabis Pilot Program for the construction of such a facility.

As in Connecticut, once a cultivation center has successfully been built and the first bond becomes void, a second bond becomes necessary. This bond, as above, is also in the amount of $1.5 million and is meant to guarantee for the operation of the facility as per law.

Nevada

Under the Nevada Medical Marijuana Program, the Las Vegas City Council has adopted a $250,000 surety bond requirement as part of the application process for licensing a medical marijuana establishment (MME). Applications, along with the bond, have to be submitted to the Las Vegas Department of Planning.

In short, this bond is meant to secure and defend the City from any claims which may arise as a result of the licensing, establishment or operation of a medical marijuana establishment.

Additional considerations and final thoughts

Apart from the surety bond requirements for opening a dispensary in any of the above states, there are further requirements as part of the application process. These include a variety of documents, application fees, as well as annual permit fees, which vary from state to state. To find out more about those, consult the institutions’ websites provided.

Furthermore, as states are continually pondering how to regulate this industry, it can be expected that changes will be made to many of the requirements for application. Bond amounts, which currently seem to be excessively high in some of the states, will probably be regulated, along with other conditions.

If you need help with acquiring a medical marijuana bond in any of the above states, we can help you! Lance Surety Bonds works with a long list of professional and licensed bond companies and we can offer you the lowest rates. Just give us a call at (877) 514-5146 today, or apply online for a free quote!

 

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Vic Lance is the founder and president of Lance Surety Bond Associates. He served as an officer in the United States Marine Corps. He served as a logistics officer during a combat tour to Afghanistan. and as an officer in charge of an Iraqi Police Transition Team during a subsequent tour to Iraq. Later, he was assigned to the University of Michigan in Ann Arbor, serving as Assistant Professor of Naval Science and Marine Officer Instructor. 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.