California Commercial Cannabis License Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain a California Commercial Cannabis License bond
At a Glance:
- Lowest Cost: $100 per year or $10 a month
- Bond Amount: $5,000 per license activity (more on this later)
- Who Needs It: All individuals and businesses applying for a Commercial Cannabis License in California
- Purpose: To protect the California Department of Cannabis Control from financial harm if the licensee fails to properly destroy all cannabis and cannabis-related products resulting from a violation of all licensing law
- Who Regulates Commercial Cannabis Licenses in California: The California Department of Cannabis Control
Background
California Code 15000.1 requires all persons seeking to cultivate, distribute, manufacture, test, sell, or hold an event featuring cannabis products to obtain a license from the Department of Cannabis Control. The California legislature enacted the licensing requirement to ensure that commercial cannabis licensees do not engage in unethical business practices. To provide financial security for the enforcement of the licensing law, applicants must purchase and maintain a surety bond to be eligible for licensure.
What is the Purpose of the California Commercial Cannabis License Bond?
California requires those that cultivate, distribute, manufacture, test, sell, or hold events featuring cannabis products to purchase a surety bond as part of the application process to obtain a license. The bond ensures that the Department of Cannabis Control will receive compensation for financial harm if the licensee fails to abide by the regulations outlined in the California Medicinal and Adult Use Cannabis Regulation and Speciality Act (MAUCRSA). Specifically, the bond protects the Department if the licensee fails to properly destroy all cannabis and cannabis products as a result of a violation of licensing law. In short, the bond is a type of insurance that protects the public if the licensee violates licensing law.
How Can an Insurance Agent Obtain a California Commercial Cannabis License Bond?
BondExchange makes obtaining a California Commercial Cannabis License bond easy. Simply log in to your account and use our keyword search to find the “commercial cannabis” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.
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How is the Bond Amount Determined?
California Code 15002 dictates that the bond amount must equal $5,000 per licensed activity. There are seven distinct classes of the California Commercial Cannabis License, those being:
- Cultivation
- Distribution
- Manufacturing
- Testing Laboratory
- Retail
- Microbusiness
- Event Organizers
Licensees must have a $5,000 surety bond for every class of license they hold. However, licenses can aggregate the entire required amount into one single bond instead of purchasing multiple individual bonds.
Is a Credit Check Required for the California Commercial Cannabis License Bond?
Surety companies will run a credit check on the licensee to determine eligibility and pricing for the California Commercial Cannabis License bond. Licensees with excellent credit and work experience can expect to receive the best rates. Licensees with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the licensee’s credit.
How Much Does the California Commercial Cannabis License Bond Cost?
The California Commercial Cannabis License surety bond can cost anywhere between 1.5% to 8% of the bond amount per year. Monthly subscription options are also available. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $10,000 bond requirement.
$10,000 Commercial Cannabis License Bond Cost
| Credit Score* | Bond Cost (1 Year) | Bond Cost (1 month) |
|---|---|---|
| 720+ | $150 | $15 |
| 680 – 719 | $175 | $18 |
| 660 – 679 | $250 | $25 |
| 649 – 659 | $300 | $30 |
| 629 – 648 | $400 | $40 |
| 619 – 628 | $500 | $50 |
| 600 – 618 | $550 | $55 |
| 580 – 599 | $600 | $60 |
| 550 – 579 | $650 | $65 |
| 525 – 549 | $700 | $70 |
| 500 – 524 | $800 | $80 |
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
Who is Required to Purchase the California Commercial Cannabis License Bond?
California requires all individuals and business entities conducting commercial cannabis activity to purchase a surety bond as a prerequisite to obtaining a business license. To paraphrase California Code 15000, “commercial cannabis activity” includes cultivating, distributing, manufacturing, testing, selling, or holding an event that features commercial cannabis products.
BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.
How Do Individuals and Businesses Obtain a Commercial Cannabis License in California?
Persons engaging in commercial cannabis activity in California must navigate several steps to obtain a license. Below are the general guidelines, but applicants should refer to the licensing code and the state’s licensing page for details on the process.
License Period – All California Commercial Cannabis Licenses expire annually and must be renewed before the expiration date
Step 1 – Determine the License Classification
California requires applicants to obtain specific commercial cannabis licenses corresponding to the nature of their business. Applicants must obtain a separate license for each function they perform. Below are the different classifications for the California Commercial Cannabis License.
-
- Cultivation: Required for persons that plant, grow, harvest, dry, cure, grade, or trim cannabis. There are multiple subcategories of the cultivation license, as outlined below:
- Specialty Cottage Outdoor – Up to 25 mature plants or up to 2,500 feet of canopy
- Specialty Cottage Indoor – Up to 500 feet of canopy
- Specialty Cottage Mixed-light Tier 1 and 2 – Up to 2,500 square feet of canopy
- Specialty Outdoor – Up to 50 mature plants or up to 5,000 square feet of canopy
- Specialty Indoor – 501 to 5,000 square feet of canopy
- Specialty Mixed-Light Tier 1 and 2 – 2,501 to 5,000 square feet of canopy
- Small Outdoor – 5,001 to 10,000 square feet of canopy
- Small Indoor – 5,001 to 10,000 square feet of canopy
- Small Mixed-Light Tier 1 and 2 – 5,001 to 10,000 square feet of canopy
- Medium Outdoor – 10,001 square feet to 1 acre of canopy
- Medium Indoor – 10,001 to 22,000 square feet of canopy
- Medium Mixed-Light Tier 1 and 2 – 10,001 to 22,000 square feet of canopy
- Large Outdoor – more than 1 acre of total canopy
- Large Indoor – more than 22,000 square feet of total canopy
- Large Mixed-Light – mixed-light site with more than 22,000 square feet of total canopy
- Nursery – For cultivators that only grow clones, immature plants, seeds or other types of cannabis used for propagation
- Processor – For cultivators that only trim, sift, cure, dry, grade, package or label cannabis
- Manufacturing: Required for persons that compound, blend, extract, infuse, or prepare cannabis products. There are multiple subcategories of the manufacturing license, as outlined below:
- Type 7 – Volatile solvent manufacturing
- Type 6 – Non-volatile solvent manufacturing or mechanical extraction
- Type N – Infusion of products
- Type P – Packaging and labeling
- Type S – Manufacturers who work in a shared-use facility
- Distribution: Required for persons that transport cannabis products between licensees. There are two subcategories of the distribution license, as outlined below.
- Type 11
- Type 13 – Transport-only distributor
- Testing: Required for persons that test cannabis goods before they are sold by a retailer. Testing license holders must obtain ISO/ISE17025 accreditation.
- Retail: Required for persons that sell cannabis products to the general public. There are two subcategories of the retail license, as outlined below.
- Type 9 – Non-storefront retailer
- Type 10 – Storefront retailer
- Microbusiness: Available to businesses that perform at least three of the following activities at a single location.
- Cultivation – Up to 10,000 total square feet
- Manufacturing – Use of non-volatile solvents, mechanical extraction or infusion
- Distribution or distribution transport-only
- Retail – storefront or non-storefront
- Event: Required for persons hosting an event that includes cannabis products. There are two types of the event license, as outlined below:
- Event Organizer – For the person hosting cannabis events
- Temporary Cannabis Event – For the event itself
- Cultivation: Required for persons that plant, grow, harvest, dry, cure, grade, or trim cannabis. There are multiple subcategories of the cultivation license, as outlined below:
Step 2 – Obtain Local Permits
Municipalities in California have different rules and standards that commercial cannabis businesses must follow to operate in their jurisdiction. Applicants must ensure that they are in compliance with all local ordinances and obtain all necessary local permits.
Step 3 – Purchase a Surety Bond
License applicants must purchase and maintain a $5,000 surety bond for each licensed activity they engage in.
Step 4 – Complete the Application
All California Commercial Cannabis License applications should be submitted online through the Department of Cannabis Cannabis Control’s online licensing portals. The licensing portals can be accessed here.
Applicants must complete the application in its entirety and pay all required fees.
How do Licensees Renew the California Commercial Cannabis License?
California Commercial Cannabis License holders can renew their licenses, and pay all required fees, online here. All California Commercial Cannabis Licenses expire annually and must be renewed before the expiration date.
What are the Insurance Requirements for California Commercial Cannabis License Holders?
California does not require applicants to purchase any form of liability insurance as a prerequisite to obtaining a commercial cannabis license. However, applicants may have to purchase insurance before obtaining a local business license or permit. Licensees must purchase and maintain a $5,000 surety bond for each licensed activity they engage in.
How do California Commercial Cannabis License Holders File Their Bonds?
Commercial cannabis license holders in California should submit their completed bond forms, including the power of attorney, electronically when submitting their license applications. The surety bond requires signatures from the surety company and the licensee. The surety company should include the following information on the bond form:
- Premium on the bond
- Legal name and address of the individual buying the bond
- Surety company’s name, state of incorporation, and address
- Bond amount
- Date the bond goes into effect
- Date the bond is signed
What Can California Commercial Cannabis License Holders Do to Avoid Claims Made Against Their Bonds?
To avoid claims against their bonds, commercial cannabis license holders in California must ensure that they properly destroy all cannabis and cannabis products as ordered by the Department of Cannabis Control resulting from a license violation.
What Other Insurance Products Can Agents Offer Commercial Cannabis License Holders in California?
Most reputable commercial cannabis license holders will purchase liability insurance. Bonds are our only business at BondExchange, so we do not issue any other types of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for California Commercial Cannabis License Holders?
California conveniently provides a public database of active commercial cannabis license holders in the state. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.