Financial Regulators Seeking to Help Hemp Businesses Access Banking Services

Several financial regulators recently issued a statement making it easier for banks to provide services to hemp businesses…

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency, and the Conference of State Bank Supervisors recently issued a statement making it easier for banks to provide services to hemp businesses.

Prior to the 2018 Farm Bill, financial institutions were required to file suspicious activity reports for accounts associated with hemp-related businesses. Under new guidance, hemp businesses can be treated like any other business.

Evolving Hemp Regulations

Signed into law on December 20, 2018 the Agriculture Improvement Act of 2018 (2018 Farm Bill) removed hemp as a Schedule I controlled substance under the Controlled Substances Act (CSA). The term “hemp” is defined in the 2018 Farm Bill as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.”

The 2018 Farm Bill directed the U.S. Department of Agriculture to establish a hemp production regulatory plan. On October 31, 2019, the USDA issued an interim final rule establishing the domestic hemp production regulatory program to facilitate the legal production of hemp. Under the interim final rule, state departments of agriculture and tribal governments may submit plans for monitoring and regulating the domestic production of hemp to the USDA for approval. The interim final rule establishes a federal licensing plan for regulating hemp producers in states and tribal territories that do not have their own USDA-approved plans. Among other provisions, the interim final rule includes requirements for maintaining information on the land where hemp is produced, testing hemp for tetrahydrocannabinol (THC) levels, disposing of plants with more than 0.3 percent THC, and licensing for hemp producers.

New Banking Guidance for Hemp-Related Businesses

In their joint guidance, entitled “Providing Financial Services to Customers Engaged in Hemp-Related Businesses,” the four federal agencies clarify the requirements for providing financial services to hemp-related businesses under the Bank Secrecy Act (BSA). It specifically emphasizes that banks are no longer required to file suspicious activity reports (SAR) for customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.

“Because hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, banks are not required to file a Suspicious Activity Report (SAR) on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations,” the guidance states. “For hemp-related customers, banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants.”

The federal agencies further advise that bank customers engaged in hemp-related business activities are responsible for complying with the requirements set forth in the 2018 Farm Bill8 and applicable regulations. The guidance also highlights that financial institutions can decide whether to offer services to the hemp industry. “When deciding to serve hemp-related businesses, banks must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting, and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers,” it states.

The financial regulators also indicated that additional guidance is forthcoming. The statement indicates that FinCEN plans to issue additional guidance after further reviewing and evaluating the USDA interim final rule. The USDA is accepting public comment on the proposed Domestic Hemp Production Program until December 30, 2019, although an extension of that deadline is possible.

Banking for Marijuana Businesses

The new guidance is welcome news for the cannabis industry, which has struggled to gain access to financial services.  However, as the agencies emphasize, marijuana is still a controlled substance under federal law.  Accordingly, existing federal guidance still applies when providing banking services to marijuana businesses. The memo expressly notes that “[i]n the context of marijuana-related businesses, banks should continue following FinCEN guidance FIN-2014-G001 – BSA Expectations Regarding Marijuana-Related Businesses.”

For the greater cannabis industry, the Secure and Fair Enforcement Banking Act (SAFE Act) is likely the best hope. Passed by the U.S. House of Representatives on September 25, 2019, the bill seeks to increase access to financial institutions. It specifically prohibits federal banking regulators from terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business. It also provides that banking regulators may not prohibit or otherwise discourage a depository institution from offering financial services to cannabis businesses.

The SAFE Act currently has 33 cosponsors, as well as the endorsement of major financial sector lobbying groups, including the American Bankers Association, the Independent Community Bankers of America, and the Credit Union National Association.  However, given that many Republicans are still opposed to relaxing the country’s marijuana laws, its likelihood of passage in the Senate is unclear.

If you have 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.