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 Does This Mean for Licensed Producers
New legislation requires all Health Canada-licensed cultivators and manufacturers to obtain a cannabis license 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 calendar month, 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 reuires 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 can be in the form of a Government of Canada bond or a letter of credit from an acceptable bank. Another acceptable form of security is a surety bond issued by a company that is licensed under the laws of Canada or of a province to carry on the surety class of insurance business in Canada.
What Is A Cannabis Excise Surety Bond?
A cannabis excise bond, also known as a cannabis security bond or cannabis tax bond, is a type of surety bond that was created by the CRA and insurance industry due to its many advantages over a letter of credit. The most notable benefit is it can be issued without encumbering any cash assets.
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 reach the cap – excise bonds are cheap in comparison to the alternative means of a letter of credit. You can learn more about excise bonds and excise tax calculations here.
Ready to Get Started?
If you are currently searching for a provider of L302 Surety Bond for Cannabis, FCA Surety has a program with a licensed bond company that allows us to provide the bonds to you in as little as 24 hours.
Have questions? We welcome your call or email and would be happy to address any questions you might have.