It has never been easier or safer to bank hemp related businesses. On June 29, 2020, FinCEN, the financial crimes unit of the Treasury Department, issued guidance on banking hemp-related businesses. While FinCEN issued guidance for banking federally illegal marijuana related businesses back in 2014, FinCEN had not, until recently, provided guidance for banking hemp related businesses.
Most states enacted laws permitting and regulating the cultivation, production, and sale of hemp and its derivative products (collectively, “hemp”) subsequent to the passage of the 2018 Farm Bill. The federal legalization of hemp and the establishment of state programs spawned a surge of investment in hemp-related businesses, real estate, equipment, intellectual property, and labor, which in turn has resulted in increased demand for traditional bank deposit and lending services.
Unfortunately, federal regulators did not initially provide clear guidance to lenders distinguishing a federally legal hemp loan/deposit customer from a federally illegal (under applicable anti-money laundering and compliance rules) marijuana-related business customer. This regulatory guidance void caused confusion and resulted in banks turning away potential customers in this burgeoning industry.
FinCEN has now addressed this uncertainty relating to the banking of hemp businesses with its most recent guidance, which is intended to “enhance the availability of financial services for, and the financial transparency of, hemp-related businesses in compliance with federal law.” FinCEN articulates a number of customer due diligence directives which reiterate general requirements (like obtaining customer identification and ownership information) and provide industry-specific directives like confirming the customer’s compliance with state, federal, or tribal licensing requirements. FinCEN also urges financial institutions to assess the risk posed by a hemp customer and impose such additional reporting requirements (like crop inspection or testing reports) as may be necessary.
The June 2020 guidance incorporates December 2019 regulatory guidance relating to suspicious activity reports (SAR) and confirms that banks do not have to file a SAR on a customer that is “engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.” Notably, the most recent guidance also allows for a business engaged in medical or recreational marijuana business (still federally illegal) to use the banking system for its hemp-related business if the proceeds of the businesses are kept separate and can be identified as proceeds from the hemp business only. Prior federal guidance on marijuana-related businesses is unchanged.
The Michael Best Cannabis Industry Group assists banking clients in developing protocols for serving the hemp industry, as well as helping hemp related businesses navigate the banking process.