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Banks Are No Longer Required to Report Hemp Cultivators as Suspicious, Regulators Say

Banks No Longer Required to Report Hemp Growers as Suspicious

Federal and state banking regulatory officials recently issued a joint statement on December 3 confirming that banks are no longer needed to file a suspicious report on customers solely because they are involved in the cultivation or growth of hemp in accordance with applicable rules and regulations. 

Last year, the federal government removed hemp from the list of controlled substances and legalized its production for consumer use. It defined hemp as cannabis containing no more than 0.3% THC on a dry weight basis. The Agricultural Improvement Act of 2018 directed the United States Department of Agriculture to establish a federal program and guidelines for the cultivation of hemp in the U.S. 

The USDA issued an interim final rule on October 31, which outlines a plan for state and Indian tribes that want to retain primary regulatory authority over hemp production and a federal licensing plan for producers in tribal territories and states that do not have their own USDA-approved plans. The interim final rule was applicable upon publication, with a comment timeline closing on December 30. 


Agency Guidance

The joint statement issued this week by the Federal Deposit Insurance Corp. and the Federal Reserve Board, the Office of the Comptroller of the Currency, the Financial Crimes Enforcement Network and the Conference of State Bank Supervisors follow the USDA’s rulemaking. 

It states that since hemp is not a controlled substance at the federal level like cannabis, the Bank Secrecy Act no longer needs banks to file SARs only because a customer is engaged with the production or cultivation of hemp in accordance to applicable regulations and laws. 

The guidance also mentions that banks are required to comply with all applicable regulatory guidelines and requirements when serving hemp-related businesses and that the bank’s BSA/AML compliance program should be commensurated with risks involved and the level of complexity. In addition to this, banks are still expected to follow the standard SAR procedures if suspicious activity with a hemp-related business account warrants it. 

Moreover, guidance from the FinCEN regarding the latest interim final rule by USDA will be forthcoming shortly. For marijuana-related businesses, banks are required to continue following FinCEN guidance FIN-2014-G001 – BSA Expectations regarding marijuana-related businesses.

Impact on Banks

Although the difference between banking hemp and cannabis businesses has been generally understood since the implementation of the 2018 Farm Bill, its recognition by banking regulators through the recently released statement could significantly reduce the SAR filing burden, particularly for risk-averse banks. 

The guidance may result in increased availability of banking services for hemp-related businesses. 

However, banks and regulators may continue to see hemp businesses as a relatively higher risk associated customers than other agricultural businesses as hemp is grown from the same plant as cannabis. 

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Moreover, hemp may be produced only under a USDA-approved state or tribal plan or with a valid USDA license. 

Hemp is a Cannabis Sativa plant containing high amounts of CBD. Cannabidiol or CBD is a non-psychoactive and anti-inflammatory substance that is touted for its medical benefits

While some people believe in the medical claims of CBD and use it for relieving stress, anxiety, depression, insomnia, muscle pain, injuries. Chronic pain, inflammation, etc others argue for more evidence that supports CBD’s medical claims. 

Even the U.S. Food and Drug Administration has shown its concern regarding the skyrocketing CBD product sales in the market given there’s only limited research that supports the medical claims of CBD. 

The agency recently issued warning letters to 15 companies that either marketed their CBD products with medical claims or did not accurately label the content of their products on the packaging. 

The FDA has urged companies to comply with the guidelines and work within the legal frame as the agency is yet to create a regulatory framework for CBD products. 

The limits on hemp production and sales may vary between jurisdictions, as states maintain board authority to restrict the production and sale of hemp. 

Finally, retailers and sellers of hemp-derived products, especially cannabidiol or CBD, may face additional challenges and risks given the FDA and Federal Trade Commission’s enforcement regarding medical claims of CBD. 

Banks are likely to face reputational risks from dealing with downstream sellers subject to FTC or FDA enforcement. 

Growing CBD market 

After the Farm bill was implemented, companies jumped on the CBD bandwagon and rolled out an array of products ranging from CBD oils, tincture, ointment, topical, cream, lotion, capsules, isolate, to gummies, beer, popcorn, and many others. 

While some of the companies have authorized, licensed and clinically tested products complying with the regulatory guidelines by the federal government, others have been exploiting the federal law for production and sales of hemp to drive higher revenue. 

Consumers are recommended to properly check cannabis or hemp-related products and buy from trusted brands only. 

Ivan writes about Cannabis at The Cannabis Radar. He has a degree in Nutrition Sciences from University of Oklahoma Health Sciences Centre. He likes to spend his spare time reading to his daughter or spending time with his wife.

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