As one of the states leading the path to federally legalized cannabis in the US, California’s cannabis regulations set the tone for industry standards in newly legal states. Because so much state money is invested in legal cannabis enterprises and their state regulation, it’s important that governing bodies have a say over how, where, when, and by whom cannabis can be sold. In California, one of the first steps to establishing a cannabis business is securing the correct California cannabis licensing and required cannabis surety bonds.
Our companion piece, Everything You Need To Know About California Cannabis Surety Bonds (But Were Afraid To Ask), covers the basics about California cannabis surety bonds and how they work. In this post, you’ll learn more about the different types of California cannabis surety bonds, who they’re meant for and the specific cannabis markets they cover. You’ll also learn about jurisdictions in California that require additional cannabis surety bonds, and how Millers Insurance Group can help you get cannabis bonded in California.
What Is California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)?
In 2015, California passed a series of bills – collectively known as the Medical Cannabis Regulation and Safety Act (MCRSA) – establishing the framework for California’s medical cannabis industry. In 2017, California expanded MCRSA to cover adult-use cannabis and is now known as Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). This expansion to California’s cannabis regulation included the new requirement for all cannabis licensees to post a surety bond.
MAUCRSA & California’s Cannabis Bonding Program
The State of California established its own surety bonding program for the cannabis industry in 2018. All California cannabis license holders are required to secure a cannabis surety bond, before they can commence their business operations. It’s important to note that there are several California counties and/or municipalities which require additional bonds over the state requirements.
What Are Cannabis Surety Bonds?
A surety bond is a legal agreement involving three parties: the Principal, the Surety, and the Obligee. A surety bond agrees that the Principal party agrees to abide by the terms and conditions of the Obligee; if the Principal is in violation of these conditions, the Surety agrees to pay the fines and shoulder the financial loss owed to the Obligee by the Principal.
What Do Cannabis Surety Bonds Do?
In a cannabis surety bond (also commonly referred to as a cannabis license bond,) the cannabis license holder is the Principal, the bond issuer is the Surety, and the State of California is the Obligee. Cannabis surety bonds provide a financial guarantee to the state and/or municipality that the cannabis company will operate according to the laws and regulations governing their license. If the cannabis company is determined to be non-compliant with any California cannabis regulations, the surety bond issuer is responsible for paying out all fines and associated costs of the violations.
What Happens If A Cannabis Surety Pays Out On A Claim?
If a claim is made against a California surety bond and the principal is found to be in violation of the surety agreement, the surety issuer will pay the filer of a claim. However: the principal is legally obligated to pay back any money that is paid out on such a claim. Essentially, the responsibility for paying the claim still rests with the principal. The obligee gets full financial compensation after claims are proven valid, and the obligee pays the surety according to the terms of the bond. While surety bonds are often talked about as a kind of ‘insurance’, they function more like a line of credit enforcing an agreement designated only for use under specific circumstances.
Types of California Cannabis Surety Bonds
California has divided California Cannabis License surety bonds into six basic types:
- California Cannabis Cultivation License ($5,000)
- California Cannabis Distributor License ($5,000)
- California Cannabis Manufacturer License ($5,000)
- California Cannabis Microbusiness License ($5,000)
- California Cannabis Testing Laboratory License ($5,000)
- California Cannabis Retailer License ($5,000)
What Do California Cannabis Surety Bonds Cost?
Each type of cannabis bond has a required minimum coverage amount of $5,000. This is the maximum amount that the surety will pay out on claims filed against the surety. Cannabis surety bonds can cost up to $5,000,000, depending on the business size, location, and other factors. For example, distributors, manufacturers, and microbusinesses may require more than one $5,000 cannabis surety bond based on the total square footage of their physical location.
California City and County Cannabis Surety Bonds
Cities and counties in California are allowed to regulate cannabis within their own jurisdictions, which may include requirements for cannabis businesses above and beyond what’s required by the state. California cannabis license holders should be aware that city and county cannabis bonds in addition to cannabis surety bonds required by the State of California are required to operate in certain California locations. After getting licensed, it’s important to take the time to research local laws to stay in compliance.
At present, the most notable California cities and counties requiring additional cannabis surety bonds include (but is not limited to):
City of Los Angeles
City of Palm Springs
Mendocino County
San Bernardino County
Yolo County
City of Coalinga
City of Lake Elsinore
City of Shasta Lake
Millers Insurance Group: Your Friend In The Canna-Biz
At Millers Insurance Group, we’re dedicated to helping the cannabis industry reach new heights – and that starts with protecting the business you build. The cannabis industry is complex to navigate, and rules and regulations change fast. Our insurance experts have the cannabis industry experience to help create the protection plan that fits your business today and give you the security to meet tomorrow.
We understand the complexities and challenges of the cannabis industry, and we provide a full portfolio of insurance solutions to customize your protection. Our insurance professionals are dedicated to your success and are ready to sit down and discuss your goals.
Contact us today for a free, zero-obligation consultation and see how Millers Insurance Group can protect your canna-biz.
