A joint statement this week from a group of federal and state agencies notified banks across the country of changes that would normalize the business between hemp firms and the banks, as banking regulators in the USA begin to clear the way to financial services for industrial hemp companies.
Federal signatories to the statement were the Federal Reserve Board, the Federal Deposit Insurance Corp., the Financial Crimes Enforcement Network and the Office of the Comptroller of the Currency. Separately, the Conference of State Bank Supervisors sent a statement to banks that they no longer need to file “suspicious activity reports” regarding their business with legally operating hemp producers — a holdover policy that reflected the coupling of hemp with marijuana under U.S. drug laws.
The policies have their roots in banking industry rules designed to discourage drug trafficking. The rules forced banks to treat their hemp customers with suspicion and required they file extensive notifications about hemp companies to anti-money-laundering authorities. Those requirements have now been lifted for licensed, legally operating hemp enterprises.
The changes come nearly one full year after hemp was made legal federally under the 2018 Farm Act, which placed rulemaking under the U.S. Department of Agriculture (USDA). That agency’s proposed rules for industrial hemp were recently issued and are now in a 60-day comment period that closes at the end of the year.
Bankers cheer clarity
“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, president of the American Bankers Association, told the New York Times this week.
ABA said it recently surveyed 1,800 banks last year, many of whom reported they’d received questions from farmers who were concerned their banking services would be discontinued if they started growing hemp.
Under the statement released this week, signatory banking interests identified these key points:
- Consistent with the USDA interim final rule, hemp may be grown only with a valid USDA issued license or under USDA-approved state or tribal plana.
- Research and development initiatives previously authorized under the Agricultural Act of 2014 (2014 Farm Bill) remain in effect until one year after the effective date of the USDA interim final rule.
- A state or tribal government may prohibit the production of hemp, even though it is legal under federal law. The 2018 Farm Bill provisions related to USDA-approved state or tribal plans did not pre-empt state or tribal laws regarding the production of hemp that are more stringent than federal law.
- Separately, marijuana is still a controlled substance under federal law. The 2018 Farm Bill amended the definition of marijuana only to exclude hemp from the Controlled Substances Act.
Normalization will take time
While the rule changes should help hemp companies in the long term, it’s not that clear bankers will immediately begin to treat hemp companies as normal customers, as the banks will need to keep abreast of complicated USDA and state hemp licensing requirements that are still being developed.
Hemp stakeholders and lawmakers supporting hemp in the USA have labeled USDA’s proposed hemp rules as too restrictive, and called for changes. Sen. Chuck Schumer of New York recently asked for an extension of the comment period to re-work the rules.