Financial Services for Hemp Related Businesses

By C/A Staff

What does the passing of the 2018 Farm Bill and the 2019 USDA Interim Final Rule relating to hemp mean for financial institutions? =

It means that banks can provide financial services for hemp related businesses if conditions are met, a United States Department of Agriculture (USDA) approved plan for monitoring and regulating the domestic production of hemp is implemented, the hemp is within the concentration limits set forth under the bill, and the bank’s Bank Secrecy Act and Anti-Money Laundering Program (BSA/AML) is designed to comply with regulatory requirements.

Confusion has always surrounded hemp, as it was deemed illegal for being in the same family or part of the same plant as marijuana. But hemp is a different variety of the cannabis plant and does not contain the same chemical compounds found in marijuana, which provide a psychological “high.”

Often, banks are reluctant to provide financial services for hemp-related businesses because it is associated with the cannabis plant, and because it was once on the list of controlled substances.  It is important to understand the difference between the two varieties of the plants so banks can make a sound decision when it comes to providing financial services for these types of businesses. Hemp can be used for manufacturing, production, or medicinal purposes.  It is no longer a federal violation to produce hemp, provided it contains no more than a 0.3% concentration of tetrahydrocannabinol, or THC, and follows the domestic hemp production regulatory program required to facilitate the legal production.

It is also important to note that the 2018 Farm Bill includes not only hemp, but hemp derivatives such as CBD or cannabidiol.  Marijuana, however, is still a controlled substance under federal law. The Agriculture Improvement Act of 2018, more commonly known as the 2018 Farm Bill, was signed into law on December 20, 2018 removing hemp as a Schedule I controlled substance under the Controlled Substance Act.  The bill directed the USDA and the U.S. Attorney General to regulate the production of hemp and the interim final ruled issued on October 31, 2019 provided guidance for establishing a regulatory program.  The interim final rule also provides guidance for establishing a federal license to produce hemp in states and tribal territories that do not maintain USDA-approved plans.

It is critical that banks are aware of the conditions which allow for the legalized production of domestic hemp.  Prior to providing financial services to hemp related businesses, banks must first determine that their state has submitted for approval, a plan for the regulation and monitoring of domestic hemp production or that it complies with the amended section 297C of the Agricultural and Marketing Act. Banks should also look closely at the guidance issued by FinCEN which provides risk considerations associated with hemp related businesses. 

In addition to risk considerations, banks should implement risk assessments that will aid in monitoring and reporting obligations.  A bank’s BSA/AML Program should be commensurate with its size and complexity, and must be strong enough to handle the risk associated with this type of business.  Policies and procedures under the program must address customer due diligence and enhanced due diligence and must identify how the bank will comply with regulatory requirements of hemp related businesses (e.g.: what information and documentation will be collected to ensure compliance with the THC limits). Unlike banking marijuana related businesses, the bank does not have an obligation to submit marijuana related suspicious activity reports (SAR), however, the obligation is still in place for suspicious or illegal activity. Finally, banks should work with their board of directors and legal counsel to determine risks, benefits, and approval of financial services.