Federal Agencies Clarify Banking Rules For Hemp Businesses

On Oct. 29, the United States Department of Agriculture released its long-awaited draft regulations for hemp production. On Dec. 3, four federal agencies Issued a statement clarifying the legal status of hemp businesses and their requirements for obtaining financial services.

Although hemp had been officially descheduled from the Controlled Substances Act by the 2018 Farm Bill, farmers and producers were still waiting on the guidance. The crop was federally legalized in 2014, and the 2018 Bill extended a program for domestic hemp production.

The USDA established a two-month period in which actors affected by the regulation can submit comments on the final interim rule. However, the interim regulations became effective when published, and will continue to rule until a new version is issued in 2021.

Key Points From The New Hemp Regulations

• Each state and tribal government needs to submit a plan explaining how they will monitor and control hemp production, to be approved by the USDA.
• States must gather information about hemp production, producers and crops, to be shared with the USDA.
• States must explain procedures for testing of THC levels of the crops on a batch level.
• Non-Compliant crops -which exceed 0.3% THC- must be disposed of, or those commercializing them risk federal prosecution.
• States and tribal governments can still choose to criminalize hemp between their boundaries.
• In cases of states that don’t have an approved plan, and have not criminalized the crop, producers can still apply for USDA-issued licenses.

Concerns From Hemp Farmers

The new USDA regulations received a fair amount of critique from stakeholders, concerned about the short window of time between the moment of testing for THC levels and harvest. USDA rules require testing to be done 15 days prior to harvest. However, farmers claimed this window is too short and proposed a 30-day or even a 45-day window.

Given that the same hemp seeds can express different traits depending on environmental conditions, farmers can’t guarantee their crop will be compliant until it’s grown, so if the crops eventually need to be destroyed, each day invested in vain has an extra cost.

Clarity For Banks And Financial Institutions

Banks and other financial institutions are liable of punishment by federal law if they choose to take marijuana businesses as customers, on account of marijuana’s illegal status under federal law. This applies for banks operating in states where recreational and medical marijuana has been decriminalized.

The SAFE Baking Act, which is currently awaiting Senate vote, could eventually guarantee safe banking conditions for cannabis companies, but for the time being, banks are still reluctant to give their services to the cannabis industry.

Although industrial hemp (i.e., cannabis with less than 0.3% THC) has been federally legal for over one year, some baking institutions continue to exclude hemp businesses on account of hemp’s relation with marijuana.

For this reason, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network and the Office of the Comptroller of the Currency, in conjunction with the Conference of State Bank Supervisors issued a statement clarifying the situation.

In short, banks are expected to treat hemp businesses as normal customers on account of hemp being legalized federally.

"The US Hemp Roundtable views the joint guidance issued by these banking regulatory agencies as an important step toward further acceptance of an already legal industry," Jonathan Miller, General Counsel to the U.S. Hemp Roundtable told Benzinga. "Despite these financial transactions being legal under the 2018 US Farm Bill, many banks and other financial institutions remain apprehensive to do business in the hemp industry, citing fear of the risk of federal regulatory pushback. This new guidance alleviates much of that concern by stating that banks are not required to file suspicious activity reports for customers solely because they work in the hemp industry.