Update on Hemp Banking

On December 3, 2019, the Federal Deposit Insurance Corporation (FDIC) issued a letter to financial institutions highlighting the interagency guidance on providing banking services to customers engaged in hemp production. The letter provided the following:

  • The Agriculture Improvement Act of 2018 (2018 Farm Bill) removed hemp as a Schedule 1 controlled substance from the Controlled Substances Act (CSA). The 2018 Farm Bill directs the U.S. Department of Agriculture, in consultation with the Attorney General, to regulate hemp production.
  • Because hemp is no longer a Schedule 1 controlled substance under the CSA, banks are not required to file suspicious activity reports on customers solely because they are engaged in the growth or cultivation of hemp in accordance with federal law.
  • On October 31, 2019, the USDA issued an interim final rule establishing the domestic hemp production regulatory program to facilitate the legal production of hemp, as set forth in the 2018 Farm Bill.
  • Under the USDA interim final rule, state departments of agriculture and tribal governments may submit plans for monitoring and regulating the domestic production of hemp to the USDA for approval. The USDA interim final rule also establishes a federal licensing plan for regulating hemp producers in states and tribal territories that do not have their own USDA-approved plan.

This guidance is clear that hemp is now legal, and SARs are not required when banking customers engaged in hemp production. However, this is not a complete green light to treat hemp production customers like any other business customer. Attached to the FDIC letter are the interagency guidelines, these guidelines provide significantly more details on the requirements to bank hemp production customers.

The guidance allows a bank to make the business decision to provide services to a hemp customer. However, the bank must develop a BSA/AML compliance program commensurate with the level of complexity and risks involved. The bank must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting, and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers.

While these are standard requirements for any business line, hemp is significantly more complex due to the evolving laws and hemp’s close relation to federally illegal marijuana. To effectively meet its compliance obligations, a bank must understand the interplay between the USDA interim final rules, the Controlled Substances Act, both the 2014 and 2018 Farm Bill, state pilot programs, and state or tribal applications and how they apply to the bank’s customers.  The bank must also understand these rules to effectively monitor customer compliance and to ensure the customer is not engaged in the growing or production of federally illegal marijuana.

The guidance also addresses the U.S. Food and Drugs Administration’s reservation of its authority to regulate hemp products. The FDA placed significant restrictions on how hemp and hemp products can be labeled and sold, which further complicates a bank’s compliance program.

Gleam Law has assembled a team of lawyers with the rare combination of banking and cannabis expertise. This enables Gleam to provide banks and credit unions with the legal and practical experience necessary to develop fully compliant hemp and marijuana banking programs.