Medicinal Marijuana Compliance Bonds are a new market for sureties, so not many underwriters or agencies have the knowledge or ability to underwrite them. Our office can get marijuana producers and dispensaries the statutory bonds they need to begin their work.
In some states, emerging medical marijuana producers need to obtain surety bonds guaranteeing their compliance and solvency. For example, the State of Connecticut has recently created a legal framework to regulate their new Medicinal Marijuana producers and dispensaries. Connecticut’s law requires a surety bond have the following characteristics:
- The Surety bond must be irrevocable (unchangeable)
- The bond must guarantee compliance with the applicable laws (21a-408-29 of the Regulations of Connecticut State Agencies)
- The bond must guarantee the creation the production facility within the allotted time frame
- The bond must guarantee a continuous and uninterrupted supply of marijuana to dispensaries’ customers
- The bond must guarantee immediate payment to the state upon failure to renew the producer’s license IF the Commissioner of Consumer Protection does not otherwise relieve the producer of their obligation to replace the bond
Therefore, a marijuana compliance bond in Connecticut is a type of forfeiture bond because the Surety must pay the full bond penalty in the event of any claims. In Connecticut, the bond penalty equals $2 million. Besides the forfeiture provision, medicinal marijuana compliance bonds prevent many other hazards for sureties to look out for. Most states have only enacted medical marijuana laws within the past decade. The medicinal marijuana industry lacks any kind of loss history or pattern for underwriters to use and try to predict losses.
Further, these states’ laws only allow a handful of producers at any one time (Connecticut wants a minimum of 3 producers but no more than 20). This aspect allows states to scrutinize and focus on producers more easily because only a few producers exist.
Lastly, nearly all medicinal marijuana producers have little to no experience because none legally existed prior to the states’ new laws. Thus, underwriters and sureties cannot rely on “The Three C’s” of underwriting – capacity, capital, and character. Employees and management of these start ups typically lack the experience and sufficient capital to indemnify sureties on top of all the other fees and taxes their industry demands.
Nevertheless, some applicants will meet all these requirements and our agency is here to help during the application process.