Federal Credit Unions Cleared to Provide Financial Services to Legal Hemp Industry

The National Credit Union Administration (NCUA) Recently Issued Guidance Giving Federally Insured Credit Unions the Green Light to Service the Legal Hemp Industry

Cultivation, transport, and sale of industrial hemp is legal under federal law, but businesses have continued to face challenges gaining access to financial services. In a positive step forward, the National Credit Union Administration (NCUA) issued guidance giving federally insured credit unions the green light to service the legal hemp industry.

NCUA Interim Guidance Regarding Hemp Industry

As discussed more fully in prior articles, the 2018 Farm Bill removed “hemp” from the Controlled Substances Act’s (CSA) definition of marijuana, which means that cannabis plants and derivatives that contain no more than 0.3% THC on a dry-weight basis are no longer controlled substances under the CSA. However, while hemp is technically legal, the industry must still wait for state and federal regulators — most importantly, the United States Department of Agriculture — to implement new guidelines and regulations.

The NCUA’s guidance regarding hemp businesses “encourages credit unions to thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.” However, the guidance also acknowledges the continued legal uncertainty and risks involved. “Credit unions need to be aware of the Federal, State and Indian Tribe laws and regulations that apply to any hemp-related businesses they serve.” NCUA Chairman Rodney Hood expanded on this point by stating that “Lawful hemp businesses provide exciting new opportunities for rural communities… my expectation is that credit unions will thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.”

The guidance also emphasizes that credit unions must have a Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program commensurate with the level of complexity and risks involved. In particular, credit unions need to incorporate the following into their BSA/AML policies, procedures, and systems:

• Credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity.  It is the NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business.  Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
• If a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, it is essential the credit union knows the state’s laws, regulations, and agreements under which each member that is a hemp-related business operates.  For example, a credit union needs to know how to verify the member is part of the pilot program.  Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
• When deciding whether to serve hemp-related businesses that may already be able to operate lawfully–those not dependent on the forthcoming USDA regulations and guidelines for hemp production–the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.  For example, a credit union needs to know if the business and the product(s) are lawful under federal and state lawand any relevant restrictions or requirements under which the business must operate.

To account for the ongoing risks of providing financial services to the legal hemp industry, NCUA’s guidance advises that credit unions must ensure such lending is conducted safely and soundly, consistent with sound commercial lending practices. “This includes appropriate underwriting standards that consider the borrower’s management ability and experience with this line of business, the financial condition of the borrower, and the borrower’s ability to meet all obligations and service the debt,” the guidance states.

According to the NCUA, the guidance will be revised and updated once the United States Department of Agriculture finalizes forthcoming regulations and guidelines.  If you have questions regarding these developments please contact the attorneys of Scarinci Hollenbeck’s Cannabis Law Group.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.