What is an Ohio Marijuana Surety Bond?
In Ohio, every medical marijuana product and strain shall be registered with the Department of Commerce and appointed a product identifier by the State’s Board of Pharmacy before it may be supplied to a dispensary or sold to a patient or caregiver.
Medical marijuana entities applying for medical marijuana dispensary and cultivator licenses are required to demonstrate their financial stability by posting a surety bond issued by an authorized surety bond company. Medical marijuana entities that require surety bonds include any medical marijuana cultivator, processor, dispensary or testing laboratory operating in Ohio.
Ohio will license 60 dispensaries, 24 cultivators (as of present), and 40 processors statewide. Each of these functions has its own licensing and fee structure, plus other security plan and disclosure requirements.
Medical Marijuana License Bond
A Medical Marijuana License Bond is for medical marijuana entities that need to provide sufficient evidence of financial responsibility before the issuance of a Certificate of Operation. This bond ensures that the entity will engage legally and ethically in their medical marijuana business dealings. If the entity fails to adhere to the rules and provisions of the state, a claim will be made against the bond, and the Certification of Operation will be revoked.
Who are the parties involved?
Like all surety bonds, the Ohio Marijuana Surety Bond involves three parties:
- Obligee: the State Department of Commerce; under provisions by the Ohio Medical Marijuana Control Program
- Principal: the medical marijuana entity (cultivator, grower, dispensary, testing laboratory, processor)
- Surety: the bond company that provides the financial guarantee for the Principal in compliance with the rules and laws set by the Obligee
Why do you need an Ohio Marijuana Surety Bond?
Licensees need to prove they have sufficient resources to address the risks within the marijuana industry. Failure to thrive as a business can directly affect the ability to provide products to patients. With a high-security level of resources, it ensures that the business can withstand risk within their first operational years and safeguards patients’ ability to obtain legal, safe, and quality medical marijuana products.
Since the approval of the medical marijuana program by the Ohio Legislature, the Ohio Medical Marijuana Control Program is the official state agency proclaiming the rules and regulations for the Cultivators. There are Level I and Level II Cultivators.
What are Level I and Level II cultivators?
Level I cultivator is a cultivator allowed to operate up to 25,000 square foot of space allocated as the marijuana cultivation area in the application unless there is a request for expansion as approved by the Director of the Department under Administrative Code 3796:2-1- 09.
Level II cultivator is a cultivator allowed to operate up to 3,000 square foot of space designated as the marijuana cultivation area in the application unless a request for expansion is approved by the Director of the Department under Administrative Code 3796:2-1- 09.
Cultivators must ensure that there is an available and consistent supply of medical marijuana to be sold to licensed processors and dispensaries.
“Consistent supply” means:
- Not more than 120 days transpiring between harvests of at least 15 pounds of medical marijuana; or
- Maintaining an inventory of at least 20 pounds of medical marijuana for Level I cultivators and 10 pounds of medical marijuana for Level II cultivators that are ready for immediate sale.
How much does an Ohio Marijuana Surety Bond cost?
The cost of the bond (bond premium) is a percentage of the bond amount. Typically, the rate is between 1%-15% of the full bond amount that is based on the personal and business credit score of the applicant.
For cultivator licensees:
- Level I cultivators: $1,500,000
- Level II cultivators: $150,000
The bond amount is made payable to the Department wherein the bond terms include:
- The bond must be written by a surety company authorized and licensed in the State of Ohio.
- The company name and registration number on the bond must exactly match the company name and registration number in the Department’s records.
- The Department must receive copy of the bond before the issuance of a Certificate of Operation
- The Surety must not cancel the bond on less than 30 days’ notice in writing to the Department.
Once the bond is canceled, and the cultivator fails to file a new bond with the Department before the effective date of cancellation, the cultivator’s license will be revoked.
*Note: Rules and regulations for retail dispensaries, product processors and testing labs are still being revised, but they must be in place by Sept. 8.
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What are the other bond conditions?
The Department will permit a cultivator to reduce the surety bond or escrow account by $500,000 for Level I cultivators and $50,000 for Level II cultivators upon accomplishing these milestones:
- If the cultivator remained fully operational without interruption and was able to provide and maintain a continuous supply of medical marijuana for two to three consecutive years.
- If the cultivator demonstrates an ability to comply with the licensing and surety bond requirements of cultivating, growing, and dispensing medical marijuana.
How do I get an Ohio Marijuana Surety Bond?
Choose a certified surety bond company that is authorized to issue this type of surety bond in the State of Ohio. A surety underwriter will require financials to review to prove if you demonstrate sufficient liquid capital to meet financial responsibility requirements.
To qualify, you will need to submit:
- Completed bond application
- Financial documents (bank statements, account balances, credit, irrevocable letters of credit, escrow account balance, etc.)
- Certified or applied for certification (under Revised Code, Chapter 4731)
- Medical Marijuana License Bond form (a copy can be obtained from the State Department of Commerce)
- Other documents and applicable fees required (documentation, land use/facility permits, etc.)
Beginning September 9, 2018:
The Department Director may issue additional provisional licenses for cultivators in a particular territory — if the state’s population and the number of patients seeking to use medical marijuana support additional licenses.
The State may approve a one-time, marijuana cultivation area expansion of an existing cultivator’s facility, not exceeding:
- 50,000 square feet for Level I cultivators
- 6,000 square feet for Level II cultivators
Need a marijuana surety bond in Ohio? Please feel free to contact us today!