Denver marijuana businesses will no longer be required to obtain surety bonds in order to operate, under an ordinance passed by the city council Monday.

The city had required retail and medical marijuana businesses to obtain these bonds as an insurance policy that pot sales taxes would be paid. But recent federal lawsuits filed by an anti-pot group have made it difficult for marijuana businesses to obtain the bonds.

Without a change to city policy, many Denver pot shops would have faced closure because they no longer would have been able to renew their business licenses.

“It’s actually a fatal issue for businesses because, if you don’t have a bond, you can’t have a license,” said Mike Elliot, executive director of the Marijuana Industry Group. “It’s kind of a ridiculous thing to think that this issue could shut down a business, but, literally, that’s what we’ve been confronted with.”

The issue stems from federal racketeering lawsuits that have been filed by Safe Streets Alliance, a Washington-based anti-crime group that seeks to halt the expansion of legalized marijuana.

The group is filing suit under a federal law that’s typically been used to fight organized crime – the Racketeer Influenced and Corrupt Organizations Act, or RICO. Although states like Colorado have legalized recreational marijuana, Safe Streets is using RICO because the drug is illegal at the federal level.

Elliot doesn’t think the lawsuits will prevail, but they have had a significant chilling effect on businesses that provide ancillary services to stores, including bonding companies and banks. That’s because the lawsuits target not just the marijuana shops themselves but the groups that do business with them.

Elliot said a “wave” of bonding companies recently stopped providing surety bonds for marijuana businesses.

“It was a very scary thing that happened, and it happened all at once,” he said. “Some canceled policies immediately.”

The anxiety on the part of the marijuana industry led to intervention on the part of the city’s Department of Excise and Licenses.

“There is exposure there for surety bond providers and right now it’s a risk they’re not willing to take,” said Dan Rowland, a spokesman for the department. “The proposal was something that was supported by every stakeholder involved.”

Rowland said the city imposes a surety bond requirement on only a handful of “transient” types of businesses, such as pawnbrokers and valet services. Retail pot shops put up $20,000 in bonds and medical marijuana centers obtain $5,000 in bonds in order to receive licenses.

“When there’s a lack of other assets, I think it’s why that surety bond is put in place,” Rowland said. “And with marijuana, obviously, the product isn’t something that is seize-able and something that can be liquefied. The protection was put in place on behalf of the city initially to say, ‘We’re going to have this bond requirement if taxes don’t get paid.'”

But Rowland said the city has not once had to draw on a surety bond in the six years it has been collecting taxes from either medical or retail marijuana businesses. And the city can still seize other assets from pot businesses, such as electronic equipment or furniture, if it ever comes to that.

The ordinance will affect more than 400 marijuana business licenses in Denver, Rowland said.

“It should provide some significant relief because these are licensees in good standing and there are many of them who have renewed on an annual basis who are now bumping into this issue,” Rowland said of the surety bond complications. “These are businesses in good standing, and we want their licenses to be renewed.”

The effort didn’t encounter opposition through the ordinance-crafting process. It was placed on the council’s consent calendar, which is reserved for consensus items, and passed unanimously.

“There’s no reason not to do it, is what it comes down to,” Elliot said. “Bonds are there as a way to ensure the industry is held accountable. The city is saying, ‘We don’t need it.'”

The state also requires pot businesses to obtain surety bonds. Elliot said he expects similar legislation will be introduced at the Capitol next year.

– Twitter: @VicVela1