Hemp banking gets a boost as four federal agencies remove red tape for new crop

After a seasonlong struggle associated with banking and financing their operations, hemp farmers and businesses can exhale now that federal and state financial institutions have loosened reporting restrictions on hemp banking and issued guidance to members.

The Federal Reserve Board, the Federal Deposit Insurance Corp., the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency as well as the Conference of State Bank Supervisors filed a joint statement notifying banks that they are no longer required to file suspicious activity reports (SARs) for customers who grow hemp in accordance with applicable laws and regulations.

Banks are now expected to follow standard procedures and file a SAR only when they believe one is warranted.

Nearly a year after the 2018 Farm Bill legalized hemp nationwide, the joint statement reminds financial institutions of:

• The legal status of hemp.
• The U.S. Department of Agriculture’s interim final rule for hemp production.
• Relevant requirements for providing services to hemp-related businesses.

In addition, the FinCEN said it will issue additional guidance to banks after reviewing and evaluating the USDA’s interim final rule.

Clarification delayed for months

This federal banking guidance comes seven months after Republican Senate Majority Leader Mitch McConnell of Kentucky and Democratic Sen. Ron Wyden of Oregon wrote to the four federal banking institutions imploring them to instruct their members to open up banking services to hemp farmers and businesses and treat hemp as any other legal crop.

However, their letters did not lead to change in any U.S. Treasury Department rules about the paperwork involved in banking those businesses.

“Today’s multiagency announcement represents continued progress as we work to ensure hemp is treated just like any other legal agricultural commodity,” McConnell said in a statement.

In June, the American Bankers Association (ABA) also wrote to the heads of those financial regulatory agencies seeking more clarification on how banks can serve hemp businesses.

The bankers noted there had been little to no clear direction on distinguishing between legal hemp and federally illegal marijuana.

According to the ABA letter, “Banks want to serve their communities and support their local economies but need clear, unequivocal assurance that hemp is distinguishable from cannabis, and that serving the industry will not expose them to criminal and civil liability, or regulatory censure.”

The bankers went on to ask for confirmation that hemp is no longer a controlled substance and that banks do not need to file SARs for hemp transactions.

Several additional pleas have come from members of the U.S. Congress on behalf of constituent farmers and businesses that lost banking services related to growing or selling hemp.

The National Credit Union Association (NCUA), an independent federal agency that oversees and insures banking deposits for more than 100 million U.S. account holders, reminded its member institutions in August that hemp businesses are legal. The NCUA was not one of the institutions that received letters from the senators.

Industry: Banks could need more clarity

The federal guidance saying banks don’t need to file SARs for hemp customers is welcome, but it might not go far enough to instill the level of confidence banks need, said Washington DC-based cannabis attorney Jonathan Havens.

“I think it’s clear what the regulators are saying there, but statements like that might give some banks pause,” Havens told Hemp Industry Daily.

On the upside, Havens said the guidance by federal regulators is helpful to tell banks that might have been apprehensive to go ahead and work with companies that farm hemp or offer products that follow the definition of hemp under the Farm Bill.

But some banks might feel that if they can’t confidently tell the difference between hemp and marijuana, it’s not worth the risk, he added.

“The question becomes, in regulation is there a smooth pathway for banks to do this? And I think the guidance today helps, but it doesn’t force banks to do something that they’re not comfortable doing,” Havens said.

“So you’re still going to have holdbacks, but it just might move the needle for some banks that are on the fence.”

Laura Drotleff can be reached at [email protected]