One of the coolest things we did here at Harris Bricken was working with the National Credit Union Association on their Guidelines for Serving Hemp Businesses in June 2020. When we first saw 2014 and 2015 (on the THC banking side) Working with small credit unions in the Northwest, we never thought we would one day be hired by the federal government itself on cannabis matters. Then came the 2018 Farm Bill and we saw a sudden surge in credit unions dealing with the hemp bank room. Service started slowly but everyone had questions!
This post covers some key considerations that we typically discuss with credit unions looking to serve the hemp industry. This is not a complete list of questions and recommendations as we work with customers. Instead, it lists five high-level considerations for any credit union currently dealing with the issue.
What Kinds of Businesses Are You Ready to Bank?
The hemp industry consists of a spectrum from companies selling seeds to farmers to retailers of hemp and hemp CBD products. The supply chain is being built and new products (and even new markets) keep popping up. In general, it may be “safer” for a credit union to work with some types of hemp industry than others. For example, a hemp farm that produces grain under a USDA-approved plan (or under the 2014 Farm Bill) through a state license may be safer than a company in light of the Food and Drugs Administration (with the Farm and Drugs Administration) which focuses on the sale of CBD foods FDA) position on the matter. Similarly, seed companies can feel safe while Delta-8 THC extractors can feel risky. Each business category has different considerations.
Does the hemp go anywhere? And where?
Some states, like Oregon, have local hemp export laws that even many industry players don’t seem to understand. Or they have specific rules, even for local sales: that is, in the Oregon Liquor Control Commission’s pipeline versus the world at large. Other states, especially in the middle of the country, can be dangerous for shipping even legitimate hemp biomass. International import and export is a completely different matter. Depending on how the hemp company interacts with transportation, this is an important consideration for any bank or credit union.
Are you ready for a comprehensive due diligence?
I’ve always said it’s easier to launder money in the hemp ecosystem than with government-licensed marijuana. Like banks, credit unions obviously have to meet the requirements of the Bank Secrecy Act / Anti-Money Laundering Act. These regulations affect due diligence and the ongoing surveillance / KYC logs. In the hemp world, however, there are a number of other issues and oversight duties that a credit union should initially and continuously assume. These requests can include anything from copies of business finance documents to state-level permits and licenses to product disposal logs. We work with credit unions to produce state-to-state due diligence checklists, and we always advise them that their cost per account will be higher in this industry.
Do you know of any major litigation in the industry?
Federal hemp policy is still neglected, and aspects of the 2018 Agriculture Act and its implementation are currently being negotiated by industry and government. For example, the Drug Enforcement Administration (DEA) recently issued a tentative final rule stating that hemp is a substance I control (like marijuana or LSD or fentanyl) in the process at “any point” that the THC is -Concentration of hemp exceeds 0.3% on a dry weight basis (see our coverage here, here, here, here and here). It’s a bad rule, and it means that many processors in the hemp industry – including those with current accounts with credit unions – are likely to be in possession of illegally controlled substances from time to time, at least according to the DEA. Some credit unions, their directors and members will be uncomfortable with this dynamic. In any event, credit unions in this area should closely monitor lawsuits like this one.
Are you ready to have fun
The hemp industry is changing and changing rapidly. The supply chain is in progress. The guidelines for credit unions continue to be rolled out (see here, for example, the NAFCU guidelines from the past few months), and there are tons of new proposals from states and states (see here for our coverage of Rand Paul’s new 1% THC bill). Because things move so quickly, our credit union customers’ service contracts tend to contain non-standard termination terms and even indemnities, and we often review important issues that affect our customers in this area.
The hemp room may seem intimidating to credit unions. Despite everything I’ve written above, it doesn’t have to be that way. We have customers who are doing well in this area. The key is to familiarize yourself with the industry and its characteristics, and then take a sensible approach. Ultimately, there is a huge upward trend in banking that has already grown into a US $ 5 billion industry.