HEMP AND FINANCIAL INSTITUTIONS
Unlike obstacles faced by those in the marijuana industry, no legal or operational impediment prevents banks and credit unions from providing services – whether banking, merchant services, cash management and or cash transmission services – to those growing, processing or selling industrial hemp or hemp-derived products.
A. Hemp Banking Law
On December 20, 2018, when President Donald J. Trump signed the Agriculture Improvement Act of 2018 (the "Farm Bill"), U.S. federal law clarified and affirmed hemp and its derivatives are lawful substances and removing them from the Controlled Substances Act's ambit or any Bank Secrecy Act concerns.
Unlike hemp, because the Comprehensive Drug Abuse Prevention and Control Act, 21 U.S.C. §§ 801, Et. Seq (1970) ("Controlled Substances Act") prohibits “manufacture, distribution, and dispensation" of Marijuana and any transfer or deposit of monies yielded from cannabis sale may be deemed "money laundering" in violation of the Currency and Foreign Transactions Reporting Act, 31 U.S.C. §5311-5330 ("Bank Secrecy Act"), many banks and credit unions refuse to provide Marijuana growers, processors or dispensers with financial services. Inexplicably, these erroneous Controlled Substances Act and Bank Secrecy Act concerns also lead to many hemp businesses being wrongfully denied financial services.
B. Practical Implications of Hemp and Financial Services
Despite the legislative clarity provided by the Farm Bill, lingering uncertainties – and misplaced confusion with marijuana – have led many financial institutions to erroneously refuse to provide financial services to hemp companies:
Elavon, a division of U.S. Bank, offered services to hemp companies for several months in 2018 and 2019 before withdrawing those services in spring 2019;
2. Stripe cut off its services in summer 2019 to many hemp companies, including the U.S. Hemp Authority, a trade group developing
certification standards for the hemp industry;
3. Paypal has held back funds from hemp company clients upon closing account, due to its treatment of hemp as equivalent to
These refusals to provide services are unnecessary and are contrary to the intent of the Farm Bill – to make hemp companies like any other conventional business. Instead, hemp companies must (i) pay premiums to utilize alternative solutions; (ii) utilize higher-risk alternatives, including those based internationally (instead of domestically within the U.S.); and (iii) face disruption in sales, cash flow and experience frequent withholdings from service providers.
We applaud those service providers already willing to provide much-needed financial services to the hemp industry and encourage those who have yet to do so to immediately consider doing so.
C. Types of Hemp Banking and Financial Services
Because the Farm Bill permanently eliminates any Controlled Substances Act or Bank Secrecy Act concerns, no hurdles remain to providing hemp cultivators, processors, manufacturers, and sellers with banking, merchant services, cash management and or cash transmission services.
1. Banking Services
A bank is a financial institution accepting deposits from the public taking the form of federally or state-chartered banks, national banking associations, bank and trust companies, trust companies, savings and loan associations, building and loan associations, mutual savings banks, and credit union.
Banks act as payment agents by providing depository accounts, check issuing services, paying its depositors' checks, and collecting checks deposited into customers' accounts. Banks also enable customer payments via other payment methods including automated teller machines, wire transfers, Automated Clearing House ("ACH"), or electronic funds transfer at point of sale.
2. Cash Management and Money Transmission Service
Cash management involves collecting, transporting, handling, and usage of cash. It encompasses picking up cash from a depositor and transporting it to a secured location (often by a third party like armored car company) "automated cash handling" (dispensing, counting and tracking cash through specially designed hardware and software), and wire transfers (a virtually instantaneous electronic transfer of funds between bank accounts requesting payment in accordance with given instructions).
Money transmission involves a third party transferring funds on behalf of the public by any and all means including transfers domestically or abroad by wire, check, draft, facsimile, or courier.
3. Merchant Services
Also known as "payment processing", "merchant services" are provided by a third-party accepting, processing, and settling payment transactions for a merchant for a fee. After purchasing a product, customer “pays” merchant processor using a credit or debit card, the merchant delivers purchased goods to customer, and, after deducting an agreed-upon fee, merchant processor remits payment collected from customer’s credit card company or bank to the merchant
The payment processing enables a business to accept a transaction payment through a secure (encrypted) channel using the customer's credit card or debit card or near field communication or radio frequency identification enabled device encompassing: credit and debit cards payment processing; check guarantee and check conversion services; ACH check drafting and payment services; cash advances; online transaction processing; and point of sale systems ("POS").
Working as an intermediary between the party seeking to receive funds and the party seeking to purchase goods or services, the merchant service moves the customer’s funds to the retailer. Traditionally taking up to 48 hours for these funds to be credited to the transferee's bank account, POS systems can transfer funds within one hour.
HEMP IS LEGAL.
President Trump signed the Agricultural Improvement Act of 2018 ( the “2018 Farm Bill”), on December 20, 2018. Now, hemp is defined as an agricultural commodity in §297A of the Agricultural Marketing Act of 1946, as follows:
The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.
What Does the Farm Bill Legally Do?
Specifically, the Farm Bill serves to clarify and affirm the rightful place of raw hemp as an agricultural commodity, alongside corn and wheat. Notably, these hemp provisions in the Farm Bill state, in part:
Hemp is expressly excluded from treatment as “marihuana” under the federal Controlled Substances Act (“CSA”), meaning hemp is not, and cannot be considered, a controlled substance under federal law and that U.S. Drug Enforcement Administration (“DEA”) does not maintain any authority over hemp;
Instead, the U.S. Department of Agriculture (USDA) shall regulate the cultivation of hemp at a federal level (to the exclusion of DEA) and is instructed to implement regulations according to the Farm Bill;
“Hemp” is defined more expansively to include reference to – and protect – cannabinoids, derivatives and extracts;
Individual states retain the right (which many exercised in early 2019 and more are anticipated to do so in early 2020) to enact legislation and promulgate regulations at the state and local level, subject to approval by USDA;
Hemp farmers are specifically authorized to access crop insurance, grants and certifications;
Tribal governments are specifically authorized to cultivate and produce hemp;
Interference with interstate transport of hemp and hemp products is expressly prohibited;
The 2014 version of the Farm Bill is to be repealed within 1 year USDA implements its program; and
The Farm Bill does not affect the Federal Food, Drug and Cosmetic Act, which provides the U.S. Food and Drug Administration (“FDA”) authority to regulate permissible ingredients in ingestible products.
USDA is undergoing a rulemaking process, starting in March 2019 and expected to be finalized in late 2019, ahead of the 2020 planting season, upon the finalization of which, USDA will review and approve state plans submitted by a state department of agriculture;;
Accordingly, a flurry of states enacted hemp legislation in accordance with the 2018 Farm Bill in anticipation of USDA regulation in late 2019, and a number of additional states are expected to enact or amend legislation in early 2020 when many legislatures re-convene;
In the meantime, the 2014 Farm Bill remains intact to serve as a “bridge” to full implementation of the 2018 Farm Bill;
Correspondingly, FDA is undertaking a review and rulemaking process concerning hemp-derived products, including those with cannabinoids, starting with a May 31, 2019 hearing, to ensure such products are appropriately contemplated as permissible ingredients; and
Resolve bumps in the road that are likely to arise as federal, state and local legislators and regulators work to implement the tenets of the Farm Bill over the coming months and years.
HLG Hemp Practice Group