Business

Banks are Finally Opening Their Doors to Hemp Businesses

By Harris Wheless
Etienne Martin

Federal and state bank regulators announced last week that they are doing away with the considerable paperwork requirements that made it difficult for banks to lend money to hemp producers.

Banks will no longer have to undergo an extensive administrative process before offering loans to customers who grow hemp, a policy that has been a significant hindrance to the fledgling industry.

“Banking has been an ongoing problem,” Erica McBride Stark, the executive director of the National Hemp Association, told The New York Times. “So this actually should be quite helpful.”

The 2018 Farm Bill, passed last December, made hemp production legal on a federal level. The bill also removed hemp from the list of Schedule 1 substances in the Controlled Substances Act.

Despite hemp’s legalization last year, the Agriculture Department did not release a set of regulatory guidelines for the industry until Oct. 31. Following their release, bank regulators subsequently trotted out their own regulations for how banks should deal with the hemp industry.

Last week’s statement, made by the Federal Reserve, the Federal Deposit Insurance Company and other state and federal regulators, said banks can now use the same loan process for hemp producers as they do for other customers, provided the customers follow licensing requirements.

Trade groups like the American Bankers Association have long been pushing for this regulatory change.

Last month, the association surveyed 1,800 agriculture-focused banks in the U.S. and found that about half had received questions from customers who were farmers about whether they could still do business together if they started growing hemp.

We appreciate the steps regulators have taken today to clarify regulatory expectations for banks, and we look forward to working with them as they develop additional guidance,”

– Rob Nichols, the president of the association, told The New York Times.

While the change will make business smoother for companies producing hemp-derived products, it does not apply to legal marijuana businesses. Marijuana, unlike hemp, is still classified as a Schedule 1 substance.

The two cannabis plants differ in the amount of THC (tetrahydrocannabinol) they contain. Hemp has less than the legal limit of 0.3% THC, while marijuana has more than that amount and can produce some psychoactive effects.

Hemp, which has become increasingly popular since being legalized, can be used to make a variety of different consumer products, including hemp fabric and wellness supplements infused with the cannabis compound CBD (cannabidiol).

In an effort to reform the way the banking industry treats marijuana companies, many banks have come together to support a bill in Congress, the SAFE Banking Act, which would legalize marijuana banking. 

The bill would stipulate that the proceeds of a state-sanctioned marijuana business would not be considered illegal under federal anti-money-laundering laws. The House of Representatives has already passed a version of the bill, but banks are still pushing for the Senate to take it up.

It has yet to be seen how many banks will choose to do business with hemp growers following the new policy. 

Banks will have to acquaint themselves with the complicated licensing requirements that states and the Agriculture Department have put in place for hemp producers. And it may take some time before industry norms change.

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