In this photograph taken with a fisheye lens, buyers make their purchases at the counter of a marijuana shop in northeast Denver on April 25, 2015. (David Zalubowski, The Associated Press)

Denver pot shops not required to post bonds for taxes under new rules

Surety bond market dried up after RICO lawsuits were filed, putting 400 medical, retail sales licenses at risk

Denver marijuana retailers no longer have to post bonds guaranteeing they’ll pay their taxes, a regulation that some in the industry say had become a fatal hindrance.

Denver City Council this week voted unanimously to scrub the surety bond requirement from the city’s marijuana code.

Pot shops, both medical and recreational, were among a handful of businesses, including pawn brokers and parking lot operators, that had to obtain a surety bond to operate in the city.

The bonds are intended to help ensure that the city can collect sales and use tax revenue from businesses that may not have a storefront or a lot of fixed assets. Typically, if a business defaults on its tax bills, the city can seize and sell its assets to cover the missed payments.

“We’re not going to seize a bunch of marijuana,” said Dan Rowland, a spokesman for the city’s Office of Marijuana Policy. “That’s not something we can liquefy.”

The bonds have been required since retail sale of medical marijuana was authorized six years ago. During that period, the Department of Treasury has not tapped a single pot shop surety bond to recoup unpaid taxes, Rowland said.

But more importantly, the surety market has dried up for marijuana businesses. Some surety writers cut off marijuana policies mid-term and ceased offering new bonds after two federal racketeering lawsuits were filed against Colorado marijuana firms and businesses that worked with them, Rowland said.

Josh Kayser, founder and CEO of SuretyBonds.com said all of his surety writers stopped issuing marijuana bonds after the lawsuits were filed.

Marijuana Industry Group executive director Michael Elliot said the lawsuits are scaring away many ancillary businesses — banks, insurers and now the bonding companies — creating more difficulties for legal marijuana operations as they tried to meet a “technicality.”

“What we’re seeing there, it’s been a pretty useless rule. We’ve never once used these bonds,” he said.

Without a bond, a retailer couldn’t get a business license, he said. “It’s a fatal issue for a marijuana business.”

The bond logjam put more than 400 medical and recreational marijuana licenses at risk for non-renewal.

“This wasn’t a case of bad business practices,” Rowland said. “These are largely really good businesses in good standing with the city and we want their licenses to be renewed.”

Dumping the rule is welcome, especially for operators that hold multiple licenses, said Dean Heizer, chief legal strategist for LivWell, one of Colorado’s largest marijuana growers and retailers.

Medical pot shops needed to post a $5,000 bond and recreational stores needed $20,000.

“It’s a new and growing business,” Heizer said. “At least from our perspective, if you’ve been a responsible taxpayer in the past … there’s no need for this additional impediment.”

Surety bonds are still required by the state. Industry officials hope to address the issue at the legislature early next year, Elliott said.

Alicia Wallace: 303-954-1939, awallace@denverpost.com or @aliciawallace

This story was first published on DenverPost.com