Hemp Businesses Can Bank with Credit Unions, Regulatory Agency Says

Hemp Businesses Can Bank with Credit Unions, Regulatory Agency Says

by: | on August 20, 2019 | No Comments

A federal financial agency released updated guidelines on banking in the hemp industry on Aug. 19, 2019, following up on requests from lawmakers to provide clarity on the issue.

The National Credit Union Administration (NCUA) said in its interim guidance that providing banking services to hemp businesses is allowable since the crop and its derivatives were federally legalized under the 2018 Farm Bill. The notice also emphasized the economic potential of hemp and the role credit unions can play as the industry continues to develop.

“Lawful hemp businesses provide exciting new opportunities for rural communities,” NCUA Chairman Rodney Hood said in a press release. “I believe today’s interim guidance keeps with the mission of the nation’s cooperative credit system to serve people who have been overlooked and underserved.”

“Many credit unions have a long and successful history of providing services to the agriculture sector,” he said. “My expectation is that credit unions will thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.”

In a letter sent to Democratic Sen. Michael Bennet of Colorado in July 2019, which the presidential candidate’s Senate office shared exclusively with Marijuana Moment, Hood noted that NCUA was “working on possible future guidance to financial institutions” but that such guidance would be subject to change depending on what regulations the U.S. Department of Agriculture (USDA) ultimately develops.

In the meantime, the new interim guidance notes that “growth in hemp-related commerce could provide new economic opportunities for some communities, and will create a need for such businesses to be able to access capital and financial services” while clarifying that credit unions “may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp-related businesses within their fields of membership.”

While NCUA said that it is “generally a credit union’s business decision as to the types of permissible services and accounts to offer,” it highlighted the need to comply with the Bank Secrecy Act (BSA) and with Anti-Money Laundering (AML) requirements, in particular:

  • Credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity. It is the regulatory agency’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business. Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
  • If a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, the credit union must know the state’s laws, regulations, and agreements under which a hemp-related business operates. For example, a credit union needs to know how to verify the member is part of the pilot program. Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
  • When deciding whether to serve hemp-related businesses that may already be able to operate lawfully (i.e., those not dependent on the forthcoming USDA regulations and guidelines for hemp production) the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or govern these business activities. For example, a credit union needs to know if the business and the product(s) is lawful under federal and state law, and any relevant restrictions or requirements under which the business must operate.

“Hemp provides new opportunities for communities with an economic base involving agriculture,” the notice stated. “The NCUA encourages credit unions to thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.

“Lending to a lawfully operating hemp-related business is permissible.”

After the USDA releases its rules for the hemp industry, which are expected to come ahead of the 2020 planting season, NCUA said it “will issue additional guidance on this subject.”

Republican Senate Majority Leader Mitch McConnell of Kentucky, who like Bennet has also pressured federal regulators to clear up confusion around hemp banking, took credit for NCUA’s response and celebrated the new guidance.

“I’m delighted to hear the NCUA has answered my call on behalf of Kentuckians to ensure the legal hemp industry can access much-needed financial services,” McConnell said in a press release. “Although President Trump signed into law my initiative last year to remove hemp from the federal list of controlled substances, many of my constituents have told me about their difficulty receiving loans and other services that are necessary to successfully run a hemp business.

“Through this guidance by the NCUA, I look forward to more hemp farmers, processors and manufacturers starting or growing their operations with the help of Kentucky’s credit unions. As Senate Majority Leader, I’ll continue advocating for Kentucky’s priorities throughout the federal government, and I’m proud of today’s positive news.”

Credit unions have generally been friendlier to the marijuana and hemp industries than have conventional banks, and the NCUA has similarly taken a more proactive role in evolving to meet the demands of these burgeoning markets.

For example, the agency’s head clarified earlier in August 2019 that credit unions wouldn’t be punished simply for serving hemp businesses so long as they were following standard procedures. The NCUA also released a draft rule in July that would allow people with past drug convictions to work at credit unions.

Cannabis banking issues have received significant congressional attention this session, with a bipartisan consensus emerging around creating a legislative fix so that hemp and marijuana businesses are able to access financial services.

The hemp industry, in particular, has enjoyed bipartisan support since the crop was legalized, but while marijuana remains a federally controlled substance, more lawmakers from both parties are expressing interest in affording cannabis businesses the same access in order to increase financial transparency and mitigate public safety risks associated with operating on a largely cash-only basis.

The House Financial Services Committee approved a bill in March 2019 that would protect banks that service marijuana businesses from being penalized by federal regulators, and the Senate Banking Committee also held a hearing on the issue last month.

Republican Senate Banking Committee Chair Mike Crapo of Idaho, who suggested earlier in 2019 that his panel wouldn’t convene to discuss the matter as long as cannabis is federally illegal, has since taken a stance that the issue needs to be resolved.

But while advocates hoped that legislation to address marijuana banking problems would be taken up by the full House ahead of the August recess, that window closed and attention is now turned to a potential hearing in fall 2019.

Feature image: Under a guidance issued by the National Credit Union Administration on Aug. 19, 2019, credit unions would be able to extend services to hemp businesses as long as several other financial, agricultural, and other federal and state regulations are followed. (Photo by Gina Coleman/Weedmaps News)

This article has been republished from Marijuana Moment under a content syndication agreement. Read the original article here.

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