Medical Marijuana Production Facility Construction ($2,000,000) Bond - Statewide in Connecticut

Brief Summary

This $2,000,000 bond is posted by the medical marijuana producer, not by the general contractor who builds the facility. It lets a producer satisfy Connecticut's $2,000,000 security requirement without tying up that cash in an escrow account, and the obligation steps down by $500,000 as the facility hits each operating milestone.

Connecticut General Statutes 21a-408i allows the Department of Consumer Protection to require each licensed producer to maintain $2,000,000 in a Connecticut escrow account. The producer regulations let that obligation be met with an escrow account, a letter of credit, or a surety bond from a surety licensed by the Connecticut Insurance Department. The DCP construction bond form names the State of Connecticut as obligee and guarantees that the producer builds a production facility that is fully operational and able to commence production.

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How to Apply for a Medical Marijuana Production Facility Construction ($2,000,000) Bond:

• Confirm with DCP that a producer application window is open, since the producer page states applications are not being accepted at this time.
• Decide whether the $2,000,000 security will be a surety bond, an escrow account, a letter of credit or a combination.
• Have the producer's legal entity name exactly as it appears on the DCP application.
• Provide financial statements and owner information for the surety's underwriting review.
• Execute the DCP construction bond form, or a surety form meeting the RFA requirements, with the State of Connecticut as obligee.
• Track the four operating milestones so the obligation can be reduced by $500,000 at each one.

Detailed Information About the Connecticut Medical Marijuana Production Facility Construction ($2,000,000) Bond:

The producer posts this bond

This is not a contractor performance bond. The principal is the licensed medical marijuana producer and the obligee is the State of Connecticut. The DCP form is titled Medical Marijuana Producer Performance Bond For the Construction of a Production Facility. It obligates the producer to construct a production facility that is fully operational and able to commence production of marijuana. If the Commissioner of Consumer Protection determines the producer failed to complete construction on time, the surety pays the full $2,000,000 penal sum to the State. The bond becomes void once the Commissioner determines the obligation was timely met.

Escrow, letter of credit or surety bond

CGS 21a-408i provides that each licensed producer may be required to maintain an escrow account in a Connecticut financial institution in the amount of $2,000,000. Regulation 21a-408-21(b)(11) accepts proof that the applicant can establish and maintain an escrow account in a Connecticut financial institution, a letter of credit drawn from a Connecticut financial institution, or a surety bond issued by a surety company licensed by the Connecticut Department of Insurance with a capacity and rating acceptable to the commissioner. DCP says applicants may combine security vehicles so long as the total package meets the requirement.

At the application stage, DCP asks only for documentation showing the ability to establish and maintain the $2,000,000 security.

Two DCP bond forms

DCP posted two preferred bond forms on the producer license page, one for construction of a production facility and one for operation of a production facility. Applicants may use the preferred forms or a surety's own form if it meets the producer RFA requirements. DCP has said it does not plan to add cancellation clauses to its forms.

The obligation steps down

According to DCP, section 21a-408-29(b) sets four milestones, each reducing the escrow, letter of credit or bond by $500,000: the facility becomes operational, it stays operational for one year without violation, it stays operational for an additional two consecutive years, and it stays operational for a second two year period. A producer that voluntarily declines to renew and gives notice under section 21a-408-23(f) has the obligation extinguished.

Fees and the adult-use law

DCP lists a $25,000 nonrefundable application fee, a $75,000 registration fee and a $75,000 renewal fee. The DCP producer page currently states that the department is not accepting applications. Connecticut's adult-use cannabis law did not replace the producer license. CGS 21a-420e lets a producer licensed under 21a-408i apply for expanded authorization to sell into the adult-use market for a $3,000,000 conversion fee, and the $2,000,000 escrow provision remains in 21a-408i.

Eligibility and Requirements for a Connecticut Medical Marijuana Production Facility Construction ($2,000,000) Bond:

• Bond amount of $2,000,000 for construction of the production facility.
• State of Connecticut named as obligee.
• Surety licensed by the Connecticut Insurance Department with a capacity and rating acceptable to the commissioner.
• Principal is the licensed producer, not the building contractor.
• Producer application fee of $25,000 and registration fee of $75,000 as listed by DCP.

Connecticut Medical Marijuana Production Facility Construction ($2,000,000) Bond FAQs:

Official and Additional Resources for the Connecticut Medical Marijuana Production Facility Construction ($2,000,000) Bond: