L302 - Surety Bond for Cannabis
Updated: May 30, 2018
In anticipation of the legalization of recreation cannabis, the Government of Canada has officially released the cannabis excise duty requirement for cannabis licensed producers on May 14th. To access the requirement, see L302 - Surety Bond for Cannabis.
What Is A Cannabis Excise Bond?
A cannabis excise bond, also known as a cannabis (or marijuana) security bond or cannabis tax bond, is a type of surety bond that was created by the insurance industry due to its many advantages over a letter of credit; most notably its non-impact on cash flows.
Another advantage of a cannabis excise bond is its relatively low premium. As outlined in the proposed cannabis excise duty framework, licensees are required to post security with a minimum of $5,000 up to a maximum of $5,000,000. Although many large Licensed Producers will hit the cap – excise bonds are cheap in comparison to the alternative of fronting the cash with an LC. You can learn more about excise bonds and excise tax calculations here.
What Does This Mean For Licensed Producers?
New legislation requires all Health Canada-licensed cultivators and manufacturers to obtain a cannabis licence from the CRA. Further to this requirement, all licensed cultivators and manufactures are now required to provide security covering the applicable duties owed in one full reporting period, with a minimum of $5,000, up to a maximum of $5,000,000.
What Are “Acceptable” Forms of Security?
Similar to the tobacco and alcohol industry, the CRA requires that licensees post security to ensure they will be able to recover all duties owed in the event of insolvency on behalf of the manufacturer. Traditionally, this security has been in the form of an irrevocable letter of credit, although for Cannabis LP's it can be supplemented with a cannabis excise bond.
Ready To Get Started?
It's an exciting time to be a Cannabis LP! Be sure to fill out the L302 Bond document to fulfill the legal requirements to operate your business.
As one of Canada’s only insurance brokerages dedicated to the marijuana industry, we have the experience and expertise to provide cannabis tax bonds at preferred market rates. Our team is available and eager to answer any questions you may have, so please send us an email or give us a call!