Hemp – What Is All the ‘Smoke’ About

We are receiving more calls from bankers who are being approached by customers involved in a hemp business. Hopefully some facts — the newly released December 3, 2019, interagency statement — and a few risk management considerations shared below will help clear the air and be beneficial in your discussions and processes for deciding whether to bank hemp customers.
Key facts:  

• Industrial hemp is a variety of the Cannabis sativa L plant grown specifically for use in clothing, cosmetics, rope, paper, paint, etc. 
• The difference between industrial hemp and marijuana is the tetrahydrocannabinols (THC) levels. One requirement, of several requirements, for classification as industrial hemp is that the THC level cannot exceed 0.3 percent.
• The Agricultural Improvement Act of 2018 Subtitle G (2018 Farm Bill) federally legalizes the production and cultivation of industrial hemp by giving each state the authority to regulate the production of hemp within their state. All Fifth District states have passed legislation allowing for the growth and cultivation of hemp, but under varying requirements in each state.

On December 3, 2019, the Federal Reserve System, Financial Crimes Enforcement Network (FinCEN), Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Conference of State Bank Supervisors issued an interim statement addressing the legal status of hemp under the 2018 Farm Bill (Interagency Statement). The Interagency Statement addresses a key question banks have raised concerning the suspicious activity reporting (SAR) regulations, and makes clear that banks would not have to file SARs on hemp producers that are operating lawfully (i.e., in accordance with U.S. Department of Agriculture regulations and state requirements). The Interagency Statement also indicates FinCEN intends to issue comprehensive guidance to answer many of the other questions bankers have raised, particularly around customer due diligence, but the timing of this additional guidance is unclear.

Until the additional FinCEN guidance is issued, here are some risk management considerations around types of customer due diligence to consider obtaining prior to and while banking a hemp customer:

• Copies of all state-required licensing information
• Geo-coordinates of the crop land
• Estimated crop return and expected revenue
• Information on how seeds/clones (starter plants) were obtained
• Types and results of testing performed
• Description of the product the producer is selling, as well as the primary consumer(s)

If you are a state member bank supervised by the Federal Reserve Bank of Richmond and you would like to discuss the statement, please reach out to your designated portfolio central point of contact.