When Congress passed the Hemp Farming Act of 2018, a lot of farmers, manufacturers, and retailers assumed that they could start selling their products just like other companies do.
These new businesses already had a lot of regulations to follow, such as ensuring THC levels below 0.03%. It didn’t take long before CBD and other hemp businesses discovered another roadblock.
Despite federal legalization of hemp, banks that worked with hemp companies needed to file “suspicious activity reports” about their clients.
Congress legalized hemp, but it still took a cautious approach that hurt the burgeoning industry from growing as quickly as expected.
Some banks filed their reports and continued working with legitimate hemp companies. Others didn’t want to deal with the extra work, so they decided not to accept hemp companies as clients.
Finally, Congress has found a solution that should benefit all parties.
What Are Suspicious Activity Reports?
All financial institutions are required to submit suspicious activity reports when they believe that a customer is using their services to launder money or commit fraud. The Treasury Department sets a 30-day window for banks and similar institutions to submit reports.
Suspicious activity reports can make it considerably more difficult for criminals to borrow, save, and access cash from legitimate institutions. No one doubts that the reports can do good things.
Unfortunately, many financial institutions felt that they needed to write reports about clients earning money from hemp. Hemp, after all, is a type of cannabis, which the federal government has not legalized.
Submitting suspicious activity reports assured that banks stayed on the right side of the law. In the financial industry, it makes sense to take an overly-cautious position so you never get fined by the government.
Not surprisingly, the most cautious institutions choose to deny clients earning money from hemp and CBD. This approach created a hardship for farmers, manufacturers, and retailers. Experts believe that the CBD market could reach $20 billion by 2024. Despite the industry’s great value and rapid growth, a lot of banks simply did not want to run the risk of accepting their business.
Congress’s Latest Move Makes Hemp Financing Easier
In November 2019, the Federal Reserve’s deputy general counsel told a group of banking leaders that the government would soon iron out issues that keep banks from working with the hemp industry.
Banks were already working on internal regulations for the industry. Without a clear sign from Congress, though, they couldn’t feel confident about their decisions.
The change in federal policy finally came in December 2019 when regulators stated that financial institutions shouldn’t consider hemp businesses “suspicious” anymore. Banks can still submit suspicious activity reports when they have evidence that a company is breaking the law, but they are not required to act as the “hemp police.”
The new policy essentially shifts responsibility from banks to growers and suppliers. Until recently, the government heavily relied on banks to report suspicious activity in an industry that financial institutions no little about. After the Farm Bill, banks found themselves in a precarious position. Now, the problem has been solved by recognizing that banks are not responsible for the activities of legal businesses.
Why Hemp Producers Need Banks
Anyone in the hemp industry will immediately realize the benefit of accessing legitimate financial institutions. The new friendliness between hemp and banking means that hemp producers will have easier access to:
- Business loans that help companies grow in a competitive industry.
- Low-interest lines of credit businesses can use for payroll and other expenses.
- FDIC-insured accounts that protect money from theft.
- Checking accounts that make businesses look more reliable when dealing with vendors.
Getting blocked from the financial industry has created a significant hardship for those in the hemp industry. Now, the federal government says it will take a more active role.
The Latest Approach to Hemp Regulation
For the most part, hemp growers understand that they can make a lot of money by following federal and state guidelines. A few farmers, however, have tried to grow high-THC cannabis under cover of industrial hemp.
The government will take a more active role in regulating the industry to make sure companies know that they will suffer repercussions for breaking federal cannabis laws. This change will likely mean that federal- and state-trained officials will spend more time visiting hemp farmers and testing their products. If the hemp has more than 0.03% THC, then companies will face consequences.
Unfortunately, the government doesn’t seem to have a policy that defines the consequences. A farm may get a warning for selling hemp with THC levels slightly higher than 0.03%. A farmer obviously growing cannabis intended for intoxication may face jail time as well as fines.
Much of the regulatory tests may happen without the knowledge of farmers and producers. Government agencies could purchase products from stores, test for THC levels, and determine whether the companies follow the law.
More Regulatory Clarifications to Come
Federal clarification makes it much easier for banks and hemp companies to do business together. Both industries will find that a relief that helps them grow and earn more money.
Still, hemp continues operating in a gray area because a small mistake could make products illegal. Hopefully, the government will continue refining its policies to help everyone involved make hemp products that benefit people and profits without unintentionally breaking the law.