A growing number of states require marijuana dispensaries and growers to obtain surety bonds, but consistency is sorely lacking.
The Buzz Over Bonds
in the weed business
are wildly inconsistent
and sometimes seem
biased against the
Now that medical and/or recreational use of marijuana is legal in early a quarter of U.S. states, several are now requiring marijuana dispensaries and growers to obtain surety bonds to make sure the businesses are viable and upstanding. But some are questioning the high bond amounts required by
states like Arkansas, Florida and Connecticut, claiming it’s “cannabigotry” in a
drive to stamp out the controversial businesses. Colorado last year relaxed its
surety bond requirements after too many mom and pop firms went out of business
due to the tightening of the surety bond market there.
Some marijuana bonds guarantee compliance with a state license, but most often
the bonds guarantee payment of tax revenue on the sale of marijuana, said Victor J.
Lance, president and owner of Lance Surety Bond Associates Inc. in Doylestown, Pa.
“These bonds are currently very difficult to place, and most bond companies
avoid writing them for primarily two reasons — federal law still makes possession
and use of marijuana illegal, and the threat of RICO [Racketeer Influenced and
Corrupt Organization] lawsuits,” Lance said.
In 2015, an anti-marijuana group sued several Colorado dispensaries and
companies doing business with them, including Merchants Bonding Co., claiming
they violated the federal RICO act. The surety bond firm settled and immediately
exited the marijuana bonding business, and most other bond companies followed
“However, there are still some bond companies willing to write these bonds for
qualified applicants,” Lance said. “If federal law changes, which some think is only
a matter of time, this will most certainly change as more and more bond companies
re-enter the industry.”
Regardless of federal law, state regulators “need to be thoughtful” in setting
appropriate penal sums and determining bond language, he said. Some states like
Florida and Connecticut require surety bonds for $1 million or more, but it’s very
difficult, if not impossible, for most new businesses to qualify for a bond of that size.
“If a state decides to require a bond that no bond company is comfortable
writing, the requirement becomes unattainable for most businesses and can be
detrimental to the growth of the marijuana industry in their state,” Lance said. “It’s
important for state regulators to consult with the surety industry, such as the legal
counsel at the Surety & Fidelity Association of America, before deciding on new
Colorado last year removed the surety bond requirements for marijuana firms.
Other RICO lawsuits against marijuana firms and those that do business with
them have since been dismissed by federal judges or turned down by the U.S.
The Arkansas Medical Marijuana Commission proposed surety bond
requirements for marijuana businesses wishing to obtain licenses, which must be
approved by the Arkansas Legislature. The state will initially award 32 dispensary
licenses on a lottery basis and five cultivation facility licenses based on the firms’ merits.
To qualify for a cultivation license, applicants must provide proof of assets
or a surety bond in the amount
of $1 million, an initial $500,000
performance bond, and proof of at least
$500,000 in liquid assets.
For dispensary licenses, applicants
electing to cultivate medical marijuana
on the premises must provide proof of
assets or a surety bond in the amount of
$200,000 and proof of at least $100,000
in liquid assets.
Keith Mansur, publisher of the
“If a state decides to require
Oregon Cannabis Connection’s OCC
a bond that no bond company
is comfortable writing, the
requirement becomes unattainable
for most businesses.”
—Victor J. Lance, president and owner, Lance Surety
Bond Associates Inc.
• Some bond companies avoid
marijuana businesses due to
• Overzealous regulators could
stunt the growth of the industry.
• Being a cash-only industry