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Massive Change in Oklahoma Cannabis Laws Now Require Surety Bonds

Oklahoma Governor Kevin Stitt signed SB 913 into law on 4/20/2023 which created a new surety bond requirement. 

The language of SB 913 has become a part of 63 O.S. § 427.26 (Title 63). The bill also contained emergency language, so it was effective immediately when it was signed into law.

427.26 requires at least a $50,000 bond for all new applicants for a commercial grow license, and all existing license holders at renewal. Those new and renewing licensees must post a bond at application or renewal, respectively, unless they've owned the land on which the grow operation is operated for five years prior to application.

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Understanding the Oklahoma Statute

Here is a breakdown of what the statute requires:

 Bonds are required for all growers except those licensees who are verified to have owned the permitted property for five years prior to submission of application.

 The bond amount will be a minimum of $50,000, but it could be higher based on factors such as topography, hydrology, and revegetation potential. The bond amount must be sufficient to assure the completion of a reclamation plan if the work must be performed by the OMMA or the DEQ in the instance of a revocation of license.

 The bond will be conditioned that the licensee complies with the building codes, administrative rules and other relevant laws, and pays all amounts of money that are due to the state while the bond is in effect.

Click here for the full text: Medical Marijuana Bond Requirement (oscn.net)

What is a Surety Bond for Cannabis Growers?

Surety bonding is a relatively obscure part of the insurance/regulatory world. The main purpose of bonds is to offer a guarantee. Technically, surety bonds are not insurance, and there are some important differences to understand between the two.

 

A surety bond is a three-party agreement between an Obligee/Owner (the entity that requires the bond or benefits from it), the Principal (the entity that is being required to bond, the grower) and the surety company (the entity guaranteeing the Principal). This is different from traditional insurance where there are only two parties, the insured and the insurer. The insured buys insurance from the insurer in order to avoid paying for a claim, this is a risk management mechanism. With surety bonds the bonded principal is required to post the bond but they do not benefit from it.

 

There are some parallels and key differences between traditional insurance and surety bonds. The first difference is to understand that qualifying for a surety bond isn’t always easy. The surety company operates with a “zero loss assumption” meaning their underwriting model has no anticipated loss. In other words, they never write a bond if there is any significant chance that the bonded client (the grower, or formally the “bonded principal”) will fail. There can be an extensive underwriting process involved, which is how the surety company attempts to prevent paying claims, by only writing bonds for customers they feel are well qualified.

Further, unlike traditional insurance, where actuaries set rates such that there is a big enough pool of premium dollars to pay for anticipated losses, if the surety is forced to pay a claim, they will pursue the bonded principal for recovery. That means the business and the owners (and their spouses) are all “jointly and severally” liable for any paid bond claims.

Don't worry! Tedford offers professional level surety bonds support. We are experts at facilitating bonds so that our clients can focus on being successful.

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