Our firm represents a number of financial institutions and even a federal agency on banking state-legal cannabis. We have practiced in the space ever since the 2014 FinCEN guidelines were issued and it’s been slow going for the most part. The number one question we have received lately is: “do you know a bank or credit union that will bank my hemp-CBD business?” The answer to this question, in short, is probably not. And if a financial institution is indeed banking your hemp-CBD business, they’re certainly doing it at their own risk in the face of the Bank Secrecy Act and federal anti-money laundering laws. This is because the legal status of hemp-CBD federally is currently precarious at best.
Banking regulators recently clarified (including for credit unions) that financial institutions should have no issue banking lawful hemp businesses pursuant to the 2018 Farm Bill. Industrial hemp is now excluded from the definition of “marijuana” and off of the Controlled Substances Act (“CSA”) altogether, and we have now have U.S. Department of Agriculture (“USDA”) interim regulations for state and tribal hemp cultivation plans under the ’18 Farm Bill. However, no banking guidance exists for hemp-CBD businesses, which are very different from just hemp cultivators. And under the ’18 Farm Bill, lawful hemp businesses, federally speaking, mean only hemp cultivators/producers. Furthermore, the 2014 FinCEN guidelines have nothing to do with hemp or hemp-CBD businesses; they exist solely to guide financial institutions on how to provide financial services to state-licensed medicinal and adult-use cannabis businesses.
Banks and credit unions are in a weird legal area then when it comes to hemp-CBD. They have the green light on openly banking hemp cultivators like any other legal business and they have fairly robust guidance on how to (if they want to) bank state-licensed cannabis businesses via an elevated SAR filing system while following other invasive “know your customer” diligence protocol. But when it comes to hemp-CBD, there’s good reason though for banks and credit unions to be confused and/or conservative.
And here’s why.
While the 2018 Farm Bill removes hemp from the CSA and permits the cultivation of industrial hemp (which previously required a permit from the Drug Enforcement Administration) pursuant to state or tribal cultivation plan that must be approved by the USDA, that federal law is silent about the legality of hemp-CBD. Unless you’ve been living in a cave, you know that hemp-CBD is literally everywhere and in almost every consumer product you can think of (see here for a CBD-infused sports bra for example). Hemp-CBD is the main hemp consumer market, and businesses of all sizes are chomping at the bit in the food, beverage, and supplement world to get a handle on manufacturing, distributing, and selling hemp-CBD products as the newest wellness craze. At the same time, the Food and Drug Administration (“FDA”) and certain states (including California) are up in arms against hemp-CBD going into food and drinks, and the FDA doesn’t consider hemp-CBD to be a supplement exempt from drug trials if you’re making curative or bodily health claims about hemp-CBD products. All told, the only legally “safe” hemp-CBD category is probably hemp-CBD topicals and makeup, but even that isn’t bulletproof given the FDA’s current position on hemp-CBD products generally.
Even though industrial hemp was legalized federally that doesn’t mean that all hemp-CBD products are legally kosher. It’s quite the opposite actually, and as a result financial institutions are pumping the brakes on banking hemp-CBD businesses, as they should. At the same time, financial institutions could certainly try to take cover within certain states that openly permit and regulate hemp-CBD products, including in food and drinks, pursuant to comprehensive state-based hemp-CBD laws. And financial institutions could also borrow diligence protocol from the FinCEN guidance to better verify the legality of a hemp-CBD operation under state law. Given the fact though that we don’t have any guidance from federal banking regulators specific to hemp-CBD companies, you’re unlikely to see financial institutions (which are already extremely conservative creatures) openly or knowingly serving hemp-CBD businesses. By extension, this is an area ripe for fraud and bad behavior around the provision of “alternative financial services” (similar to what we see occasionally in the state-legal cannabis world).
In the end, you’re more likely to get a bank account if you’re a hemp cultivator or a state-licensed cannabis business than if you’re a hemp-CBD business. If financial institutions consider servicing hemp-CBD businesses, they need to seriously study and understand the 2018 Farm Bill, the FDA’s position, and enforcement priorities around hemp-CBD businesses. They also need to be very familiar with the hemp-CBD laws in the states in which they operate so that they can perform sufficient diligence on their hemp-CBD customers and ensure they’re lawfully operating pursuant to state hemp-CBD laws.