Banking for Hemp Businesses

In 2019, U.S. federal agencies did away with the requirement to have banks submit a suspicious activity report (SAR) when dealing with hemp businesses. As a result, the metaphorical wall between the banking world and the hemp world fell, paving the way for the use of corporate banking in the hemp industry. 

It was expected that, with the passing of the 2018 Agricultural Act, banks would be open to offering their services to hemp businesses. However, this did not happen, as banks remained skeptical of the up-and-coming industry for a long time.

Thankfully, American banks are now slowly opening up to dealing with hemp businesses, as the suspicion that previously plagued the industry is gradually diminishing. This could provide the much needed financial boost that will propel hemp businesses into profitability. That being said, hemp businesses must continue to operate under the legal guidelines to be able to access banking services. 

For a hemp business to be classified as legal in the U.S., it needs to adhere to the following regulations:

  • Each hemp business must be licensed under the state and tribal regulatory authorities
  • All hemp and hemp products must to be tested on a batch level to check both THC levels and purity levels
  • Hemp businesses must ensure their hemp does not contain more than 0.3% THC
  • A hemp business must adhere to the rules and regulations that are set by the state and tribal hemp authorities. When these laws are in conflict with federal laws the stricter laws will apply

What is the Safe Banking Act?

The Safe Banking Act was created to ensure that banks do not deal with illegal marijuana businesses. As previously mentioned, once the Agricultural Act of 2018 legalized hemp at a federal level, it was governed under this act. Previously, banks were required to file anti-money laundering reports whenever they came across hemp-related banking transactions. This is no longer the case and banks are now free to do business in the hemp industry.

Marijuana businesses are still subject to the Safe Banking Act because marijuana is illegal under federal law. This is because it contains high levels of tetrahydrocannabinol (THC), which is psychoactive. 

Marijuana is closely related to hemp, as the two plants share similar physical and chemical compositions. Hemp, however, contains much lower levels of THC (less than 0.3%) which makes it non-psychoactive. Some hemp cultivars may contain higher amounts of THC, creating legal risk.

Because of hemp’s close association with marijuana, many banks and other financial institutions tend to be reluctant to do business with the hemp industry. They often cite the risk of federal repercussions, since the two plants are considered parts of the same industry. 

What is Hemp Banking Guidance

Since hemp is no longer regulated under the Safe Banking Act, the federal government created Hemp Banking Guidance to help banks get onboard the hemp industry. This guidance is targeted towards financial institutions that are looking to offer banking services in the hemp industry. Hemp Banking Guidance was released at the end of 2019 and it has yet to be fully enacted.

Key elements outlined by Hemp Banking Guidance are as follows:

  • Hemp is legal under federal law for research, commercial growth, and production
  • Banks and other financial institutions are no longer required to file Suspicious Activity Reports when dealing with hemp businesses that are operating in accordance with federal, state, and tribal hemp laws
  • When dealing with hemp customers, banks are required to follow standard SAR procedures by filing a suspicious activity report only if the situation warrants one

How Can Hemp Businesses Access Banking Services?

Hemp businesses can access banking services by making formal applications and declaring the nature of their business to banks. The banks will then investigate to ensure that a hemp business is operating in compliance with federal and state hemp laws. That being said, hemp businesses are required to take full responsibility in ensuring that they are fully compliant with all applicable laws. Hemp businesses can also access banking services from credit unions.