Letters to the Editor: A Fintech Lawyers View on the Nebraska Hemp Farming Act, Hemp, and Banking
I am writing today to discuss the Nebraska Hemp Farming Act, the federal 2018 Farm Bill, hemp, hemp derived CBD, and banking services. I had a chance to dig, no pun intended, into the issues a bit further and wanted to provide some additional thoughts and insights.
First, with respect to the 2018 Farm Bill (the “Bill”), it does appear that the Bill removed the species Cannabis sativa L. (“C. Sativa”) from the Schedule 1 Controlled Substances List under the Controlled Substances Act. The exemption includes the hemp and cannabinoids (including cannabidiol or CBD) derived from a C. Sativa plant. So, both the C. Sativa hemp and CBD derived from such hemp are no longer illegal under federal law. However, this does not mean that all CBD oil is now legal, as CBD derived from marijuana remains a controlled substance.
Even CBD derived from C. Sativa hemp is legal only if the hemp was produced in a manner consistent with the Bill and related agency regulations. For example, in order to be legal, CBD oil can’t just be derived from C. Sativa hemp, it must also be sourced from hemp grown by a licensed producer and contain acceptable hemp THC levels in accordance with federal rules and regulations.
So how does the Bill affect the banking industry? Well, it still appears that there is some confusion or reticence on the part of banks to offer services to hemp and legal CBD providers. I think this hesitancy mostly stems from the lack of guidance from prudential banking regulators clarifying that banks can now provide services to the industry. There does appear to be push to change this fact, with Senators, including Majority Leader Mitch McConnell, sending a letter to federal banking agencies reiterating hemp’s legality and requesting clarification to ease concerns over lack of access to financial services.
In addition to the general confusion that still remains, the other issue that may impact a bank’s ability to provide services to hemp and legal CBD providers is state law. Under a prior farm bill, states gained the ability to grow and cultivate and market industrial hemp for research purposes. As part of this earlier farm bill, states started to implement state programs to legalize hemp and engage in research. In terms of offering banking services then, a bank will want to limit its offerings to states that have hemp and/or CBD programs up and running and further limit activities within those states to providers appropriately licensed and compliant with those state programs and laws.
What about the federal regulators? The FDIC views the issue as one of “safety and soundness” and customer due diligence. However, my understanding is that the FDIC has also indicated that, in its view, the 2014 FinCEN guidance for banking-marijuana related businesses would NOT apply to businesses engaging in legal hemp related activities.
Based on all of this, it’s my view that a bank can likely provide financial services to persons engaged in hemp and hemp derived CBD businesses, but that the offering of such services should be subject to certain restrictions and guardrails including the following:
- Services should only be offered to hemp and hemp derived CBD businesses that operate under an authorized state’s program and, similarly, should only be offered in those states that have legalized hemp / hemp derived CBD and have established such programs.
- The bank should consider conducting additional due diligence to minimize the risk that any of its services are being used to bank still illegal marijuana or marijuana derived CBD products, including the following:
- Ensuring hemp or CBD products are grown / derived from hemp grown in the US and not overseas.
- Obtaining a certificate of analysis (“COA”) with respect to the CBD. The COA will include important information on the CBD and is actually required by some states, such as Indiana, to appear on CBD product labels. In addition, the COA should be based on testing conducted by a lab using methods validated by a national regulatory organization (e.g., the Association of Official Agricultural Chemists).
- Inquire whether a hemp / CBD provider will transport hemp or CBD across state lines
- Inquire as to the type of CBD products the business makes / sells
- Obtain information about the business’ suppliers and the suppliers’ licenses, sources of hemp etc.
- The bank should require the CBD / hemp provider to agree / certify, that they comply with all applicable laws and to report any changes to the bank.
- Finally, even with all of the above, the bank should still designate CBD / hemp business’ it opens an account for as “high risk” for BSA purposes.
I would suggest that a bank that has determined to provide services to hemp / CBD oil businesses should develop a written policy / check lists to incorporate the above procedures into its existing compliance policies.