Cannabis Construction – Reducing your Risk through Surety Bonds
Updated: Jan 21
Picture this – you’re about to break ground on your new multi-million dollar growing facility, you’re under extremely tight deadlines and you need everything to fall into place to begin production in Q2 of 2018. It’s paramount, you and your team have forecasted those numbers into your budgets, and you’re accountable to shareholders to meet those deadlines.
Would you be interested to learn that a Surety Bond could be used as a third party guarantee to safeguard construction timelines?
What are Surety Bonds?
Surety bonds are a readily available pre-qualification tool used broadly across the US, and by the government and large sophisticated buyers of construction services here in Canada. Surety bonds address the risk of a contractor failing to perform the contract and leaving you, the LP with a project partially complete, or with unpaid labour and material liens.
How could Surety Bonds help me as a Medical Marijuana Producer?
As an LP, if you require a Surety Bond on your project you could download the risk of construction non performance, or lien risk from a by a subcontractor or supplier. Doing this could drastically reduce the timeline risk associated with your build-out.
LP’s typically require some form of third party project financing for the initial construction of their grow facility. Off-loading a significant portion of the associated construction risks will set you apart from your competitors and can reduce your cost of capital.
In addition to project specific construction insurance, all sophisticated and financially stable General Contractors have access to bonding facilitates. Asking for a Surety Bond not only will set you apart as an LP, but will ensure you’re using a well-qualified, professional general contractor. Securing this will provide an irrevocable, non-cancelable guarantee.
In Canada the Standard bonding requirements for the Construction industry for a general contractor are a Performance Bond for 50% of the contract value and a Labour & Material Payment Bond for 50% of the contract value.