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Those who operate in the marijuana industry in the United States have a big problem. The plant is legal for medicinal or recreational use in 33 states plus D.C. However, it isn’t federally legal, which means banks are refusing to provide services. Financial institutions are concerned that they will receive a heavy punishment for dealing with cannabis companies.
For example, there is the possibility of losing their banking license. For weed organizations, it is a nightmare scenario. It means that dispensaries must operate on a cash-only basis in many places. This situation makes them a prime target for robbery.
What about hemp-related businesses that sell CBD products? Are they also stuck in this nightmare? The answer is ‘no’ technically, although it doesn’t necessarily mean that the hemp industry has it easy. Let’s find out more about CBD banking in this brief article.
Hemp Is Legal, But What About CBD Banking?
The 2018 Farm Bill was fantastic news for the hemp industry. It ended an 81-year wait for the legalization of the plant. The legislation removed hemp from the list of controlled substances. It is now legal to cultivate hemp, but only with a license, and only when your state has had its program approved by the United States Department of Agriculture (USDA).
What does this mean for CBD banking? It should spell the end of cash-only businesses, one would imagine. Alas, it isn’t quite as simple as that. Yes, hemp is no longer illegal. However, the FDA has not removed CBD from the list of controlled substances. That is even though a significant proportion of hemp is used to make CBD products.
The Farm Bill placed the cannabidiol industry – which means CBD banking, by extension – under the jurisdiction of the FDA. According to current FDA rules, it is illegal to sell food that contains CBD ingredients. It is also against the law to market CBD products as dietary supplements. However, CBD companies in most states offer edibles and don’t face any punishment for doing so.
Also, the Farm Bill failed to provide any direction whatsoever to regulatory agencies that oversee the banking industry. Agencies of this nature include the Federal Reserve Bank, Farm Credit Administration (FCA), and Federal Deposit Insurance Corporation (FDIC).
This is problematic because each financial body is autonomous. As a result, the FCA has a different lengthy, and convoluted rulemaking process to the FDIC. These agencies supervise credit unions and banks in different ways. It took some time, but finally, in June 2020, the U.S. Department of the Treasury issued guidance in a bid to clear up the confusion.
New Guidance on Hemp & CBD Banking
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the Department of the Treasury. It recently issued new guidelines on hemp industry banking services. According to FinCEN, when it comes to hemp growers as customers, financial institutions can confirm the grower’s compliance with USDA, tribal government, or state licensing requirements.
The bank can do this by asking for a written statement from the grower, which states that they hold a valid license. Alternatively, the bank or credit union can ask for a copy of the license.
Another option for financial institutions is to create a customer ID program in alignment with the firm’s level of risk tolerance and level of risk of each customer. They can even ask for testing reports, crop inspection documentation, or proof of license renewals.
The financial institution doesn’t have to file a Suspicious Activity Report (SAR) just because a customer operates within the hemp industry. That said, there are occasions where the activities of a hemp industry customer could trigger a SAR. Examples include if the customer:
- Lives in a location where hemp cultivation remains illegal. At present, only Idaho forbids the growth of hemp.
- Seems to be using a hemp program as a front for another criminal activity.
- Is using hemp growing to conceal a marijuana cultivation operation.
- Is unable or unwilling to provide the information on licensing requested by the bank.
What Does This Mean for CBD Banking?
The Treasury Department’s new guidance at least provides banks with relevant information. It also means that those looking for CBD banking services must continue to jump through a myriad of hoops. At present, it still isn’t straightforward to access banking if you operate in the hemp industry. When you make an application for bank services, be prepared to offer a significant amount of information. Some banks may still refuse you or at least treat you with suspicion.
In some ways, CBD banking provides financial institutions with a trial run of sorts. If it is a success, perhaps one day these companies will give cannabis companies a chance. Of course, this will only ever happen if the federal government removes the plant from the list of controlled substances.
For companies like Provacan, a UK-based business that operates internationally, CBD banking is essential for them to thrive.
