Cannabis & Hemp Real Estate Loans (After the Farm Bill)

Cannabis & Hemp Real Estate Loans (After the Farm Bill)

The Agricultural Improvement Act of 2018 is now law, and the inclusion of the Cannabis sativa L. plant as an agricultural commodity in this new Farm Bill promises to have great impact in the Hemp Industry. This makes hemp a mainstream crop, and as with other crops, farmers will need land to grow it on and capital to produce it. This agricultural growth is expected to expand into improved financial services and real estate lending opportunities for hemp farming.

Hemp Then and Now

The production and possession of any cannabis plant, including hemp, was prohibited in 1970 due to the Controlled Substances Act, where it was classified as a Schedule I drug. However, the 1937 Marihuana Tax Act (now typically spelled “Marijuana Tax Act”) had already strongly discouraged hemp production over the preceding years. It wasn’t until 2007, that hemp farming officially returned to the U.S. through the issuance of hemp licenses to two farmers in North Dakota.

The 2018 Farm Bill will greatly expand hemp cultivation, though with extensive regulations. The previous Farm Bill of 2014, limited hemp production to small pilot programs for research and study purposes. The new law removes hemp from the Controlled Substances Act. Licensed farmers may now grow hemp for commercial purposes and other uses. The sale, transport and possession of hemp-derived goods is legal, subject to specific guidelines.

Some important restrictions apply:

  • Hemp may only contain up to 0.3 percent THC, the psychoactive compound found in marijuana that delivers the “high” effect
  • Annual inspections are required to test for the level of THC in hemp plants.
  • Individual states will share in the regulation of the production and cultivation of hemp. State plans are subject to approval by the Secretary of the USDA.
  • Licenses are required for hemp farming.
  • States must maintain a registry of industrial hemp farms.
  • Individuals with felony drug-related criminal convictions within the past 10 years may not participate in hemp farming.

Hemp is a profitable and sustainable crop with growth potential. Its new legal status spells possible relief for struggling farmers.

What About Cannabidiol (CBD oil)?

In June of this year, the Food and Drug Administration (FDA) approved an epilepsy drug called Epidiolex and the Drug Enforcement Agency (DEA) classified it as a Schedule V drug, its least restrictive classification. This is of great importance to the Hemp Industry because Epidiolex contains cannabidiol (CBD oil), and its manufacturer, GW Pharmaceuticals, performed scientifically controlled research through clinical trials to substantiate the effectiveness of CBD oil in its drug. The FDA’s approval of Epidiolex signifies official recognition of the potential health benefits of CBD oil. And with the Schedule V classification, this CBD-derived medicine has been placed in the same grouping as cough syrup with codeine.

When coupled with the passage of the new farm bill, this move by the FDA and DEA may signify a future for CBD oil products. The FDA continues to maintain its position against the use of CBD oil in food and dietary supplements, arguing that it’s a drug ingredient. But, research on the potential benefits of this hemp-based product is sure to increase, perhaps clearing the way for a new outlook for CBD oil.

The 2018 Farm Bill and Lending in the Cannabis Industry

In April, the U.S. Small Business Administration (SBA) made it harder for businesses in the hemp industry to qualify for business loans. At the time, their updated lending rules made hemp-related businesses ineligible for SBA-backed loans. Specifically, the guidelines ban companies that are involved in hemp cultivation, production, processing, and distribution and in the sale of hemp-derived products that are unlawful on the state and federal levels. This is a standard attitude in banking for cannabis-related businesses.

Historically, its been very difficult for companies in the cannabis and hemp industry to secure desperately needed funding. Laws preventing the federal government from punishing banks for providing services to the cannabis industry have failed passage repeatedly, making financial intuitions wary of doing business with companies in this industry. These banking shortcomings impact small business owners and entrepreneurs the hardest. The new Farm Bill may change all that.

The new law removes many of the legal restrictions that have limited access to the banking system for hemp farmers. Loans, federal subsidies, insurance and other opportunities will now open up in this industry. The SBA guidelines won’t hit licensed hemp farmers, because their business is now lawful. The previously high risks of dealing with cannabis-related businesses operating in hemp production and hemp-based products will be greatly minimized, encouraging financial institutions to invest in this lucrative industry.

Lenders love profit and hate risk. Now that the Farm Bill has removed many of its murky legal issues, lenders are free to cash in on this desirable commodity. Once the banks are on board, credit card issuers won’t be far behind. Soon, big players in retail will invest. This will make hemp farming even more attractive to financial institutions. As a high-value, high-growth market, the hemp industry has great potential.

Cannabis Real Estate Lending

Along with the provision of other financial services, the availability of real estate loans should increase in the hemp industry. Now that Cannabis plant growers can insure their hemp crops, lenders are likely to feel better about extending real estate loans to farmers. With the move to lawful use and interstate distribution of hemp products, manufacturers, distributors and retailers in this sector don’t pose the risk they once did. Contracting with these businesses to meet their real estate needs is more likely to be viewed as a smart business decision. With the passage of the 2018 Farm Bill, the future is looking far brighter for the hemp industry

August 21, 2019 / by / in
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