In 1996, California became the first state to legalize marijuana for medical purposes, ending a decades long prohibition on the substance. The passage of the first recreational cannabis use laws in Colorado and Washington left those two states with a problem. How should a recreational drug business be regulated?
Like many occupations with significant statutory licensing frameworks, new cannabis regulators promulgated rules that obligate cultivators, processors and dispensaries to offer a sort of financial assurance. In the United States, that financial guarantee took the form of a surety bond.
A surety bond is a third-party guarantee that a principal, in this case a cannabis license holder, will comply with his or her obligations to the state and to customers. In other words, an insurance company steps in with its good name and creditworthiness and agrees to stand behind the promises of a licensee to “do the right thing.” Surety bonds are largely issued through surety agents that possess experience in bonding. Surety is a small niche product in the insurance world. There are not many insurance agents that specialize specifically in surety insurance.
With a unique risk like a cannabis business surety bond, who would step forward in to the unknown? There is one.
From a modest office in Puerta de Tierra, San Juan, a surety guy and his staff monitored the advance of regulations, enthusiastic about the possibilities. Surety One Inc. was prepared. When final regulatory rules were released and a few insurance carriers decided to participate in the cannabis industry, Constantin Poindexter and his team of underwriters immediately marketed it. The calls and emails came rolling in and haven’t stopped.
“I’ve always felt that cannabis products should be available to treat the effects of illness. It’s a quality of life thing from my perspective. I read quite a bit about it and looked at the reasoning behind the states’ push to legalize. It turned out that marijuana wasn’t the scary narcotic that the federal government has made it out to be. We read the bond forms that the states put out, got our heads wrapped around the obligations and decided that this is a space that we want to be involved in,” Poindexter said.
“At the start we all laughed when clients requested bonds from us because they asked how we could deliver from a communist island. I guess that they confused us (i.e. Puerto Rico) with Cuba,” added the company’s chief underwriter and CEO.
There has been no going back. To date, the Surety One underwriting office has issued over 3,000 surety bonds for marijuana and cannabidiol (CBD) operators in 15 states. Operators in states that have legalized marijuana show no signs of abandoning the sector and new jurisdictions appear to be poised to enter.
As a risk professional, does the product create a societal concern? “I don’t use cannabis but frankly I see no difference between it and alcohol. Do I want my brain surgeon, my airline pilot or my kid’s school bus driver smoking weed on the job? Of course not, but you can’t drink and do those things either. Bottom line, our communities will benefit more from legalization than the risk of abuse,” Poindexter responded.
Surety One is an international insurance intermediary domiciled in Puerto Rico, licensed in all 50 states, the U.S. Virgin Islands, Canada and the Dominican Republic.