Long-Awaited Guidance for Banking Hemp Clients Released


  • December 4, 2019
  • /   Ferran Arimon & Terra Tedrow
  • /   Articles,Cannabis & Controlled Substances,Banking & Financial Services
banking hemp

By: Ferran Arimon and Tara Tedrow 

Since the effective date of the 2018 Farm Bill, banking and the inability to acquire financing have been major impediments for the hemp industry. While demand for hemp continues to grow, banking regulations have still been grey as to the treatment of hemp related businesses. The hemp industry has consistently struggled to gain access to traditional banking services such as credit card processing, payroll, and traditional business loans forcing participants to seek private financing at high interest rates or seek alternative methods of financing their business such as sale lease-back transactions. Additionally, cannabis related businesses have had to deal with the inherent risk of transporting cash.

The Treasury’s Financial Crimes Enforcement Network (FinCen) issued guidance for the banking of cannabis-related business in 2014 by establishing a requirement whereby banks must submit a Suspicious Activity Report (SAR) for their clients involved in a “marijuana-related business.” When FinCen issued this guidance to the industry, hemp and its derivatives were still federally classified as Schedule 1 drugs, the same as marijuana. Since hemp was federally legalized for cultivation under the 2018 Farm Bill, the concerns of federal illegality were eased, but the operational roadblocks for companies were not. Finally, on December 3, 2019, FinCen, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, in consultation with the Conference of State Bank Supervisors clarified that banks are no longer required to take the extra step of submitting SARs as it relates to business customers dealing strictly with hemp and its derivatives.

In a joint press release, the aforementioned federal financial regulatory agencies stated: “Because hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, banks are not required to file a Suspicious Activity Report (SAR) on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.” The press release went on to include: “For hemp-related customers, banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants.” To summarize, banks are still required to submit an SAR if they believe their hemp business customers are involved in suspicious activity, but no longer are they required to submit an SAR merely because their clients are involved in the growth or cultivation of hemp.

This guidance could prove a significant victory for the growth of the hemp industry. While banks do not have to accept hemp clients, if they choose to, then those clients are to be treated no differently than clients in any other legal industry.

If you have any questions regarding financing options for hemp clients, please contact Tara Tedrow or Ferran Arimon in the Lowndes Cannabis and Controlled Substances Group.