The Complex World of Banking Hemp

Hemp legislation has progressed rapidly over the course of this past year. The 2018 Farm Bill’s legalization of hemp has created what may be one of the most lucrative opportunities for farmers in recent history. Some 46 states have already begun drafting and submitting their plans to produce hemp, a market that’s anticipated to hit $20 billion by 2024. Despite its momentum though, lack of regulations for hemp’s ancillary businesses poses a significant threat to the growth of the market. 

Convoluted guidance and contrasting state vs. federal laws have created mass confusion for banks and other financial institutions looking to support the hemp community. Federal lawmakers have urged financial institutions to treat hemp as lawful and legitimate business, but many are still unclear on how to bank them compliantly. 

What distinguishes hemp from cannabis is the THC content of the plant. A plant testing below 0.3% THC is considered to be hemp and legal under the 2018 Farm Bill. Any plant that eclipses that threshold, however, is considered to be marijuana, a federal schedule 1 drug. Although this seems fairly cut and dry, how is a bank supposed to attest that their customer’s crop is below 0.3% THC? Adding to the complexity, what’s considered a hemp business is not always easy to decipher. A land owner, for example, might lease one of their properties to a farmer who later decides to grow hemp. Even though only one of them is growing the crop, both are technically operating a hemp business and responsible for meeting certain standards. Scenarios like this just add another layer of complexity that many banks simply avoid. 

“Banks want to serve their communities and support their local economies but need clear, unequivocal assurance from their regulators that hemp is distinguishable from cannabis, and that serving the industry will not expose them to criminal and civil liability, or regulatory censure,”

~ American Bankers Association (ABA)

Without formal guidance, financial institutions have been put in an uncomfortable spot of trying to piecemeal together compliance policies for hemp. Reverting to things like the Cole Memo, various state laws and well, just plain common sense compliance. A dangerous line to toe, as some banks see it necessary to track every last detail on their hemp customers while others take a more laissez-faire approach. Both ends of that spectrum face issues of their own but in either case, they’re practices are not sustainable. 

In partnership with US Bank, Elavon, a large merchant account provider, had provided services to the hemp & CBD space since 2012. In April Elavon announced that it would no longer be accepting new applicants and within a few months would close all hemp merchant accounts. 

“After several months supporting this merchant segment, it has become clear that the evolving pace of the Federal and State regulatory framework makes it extremely difficult to validate the qualifications required to operate within the industry. It is with an abundance of caution that we make this decision.”

~ Elavon press release 

The current landscape for hemp banking is undoubtedly challenging but upcoming legislation may hold the key to smoother paths. Any day now, the House is set to vote on the highly anticipated S.A.F.E Banking Act, which would finally give financial institutions the guidance the need. Federal policy around hemp has moved swiftly up to this point and that pace is likely to continue. However, until these hopes come to fruition, the majority banks will take pause before banking hemp or CBD businesses.