Key policies to include when developing a risk-based program for serving these newly allowable enterprises
On Aug. 19, National Credit Union Association released new guidance to allow credit unions to provide certain financial services to the hemp industry, including lending services, if they choose to do so.
NCUA is the first financial institution supervisory authority to issue such guidance. In a recent interview, NCUA Chairman Rodney Hood stated that credit unions in state-legal markets would not be punished for serving cannabis related businesses, including marijuana and hemp. NCUA also stated, “Credit unions that choose to serve hemp-related businesses in their field of membership need to understand the complexities and risks involved.”
“Lawful hemp businesses provide exciting new opportunities for rural communities,” said Hood, in reference to the new guidance, which is in alignment with credit unions’ mission to serve those in underserved areas, including the agricultural community.
Based on the Farm Bill
With the signing of the Agriculture Improvement Act of 2018, commonly known as the 2018 Farm Bill, several changes were made to the legal status of hemp, which led to the NCUA’s guidance. Key modifications and changes include:
- Removal of hemp from the Controlled Substances Act (marijuana remains a schedule 1 narcotic under the CSA)
- New restriction on tetrahydrocannabinol, also known as “THC,” the psychoactive component of cannabis, which cannot exceed .3% in hemp products
- Sharing state and federal regulatory power over hemp cultivation and production
- Provisions for cultivation, transport, and sale of hemp and hemp products
- Authorization of cannabidiol, “CBD,” only from hemp produced in a manner consistent with the Farm Bill and other federal and state regulations
Hemp vs. Marijuana: What’s the Difference?
Hemp has a complicated history, and it’s often confused with marijuana. Hemp is a subspecies of the cannabis plant, as is marijuana. However, there is a key difference between the two: hemp cannot contain more than 0.3% THC, the compound that can make a user high when found in higher concentrations.
Hemp is used for many industrial purposes, such as textiles, building materials, fuel, and plastics. Recently, the hemp-derived CBD industry has skyrocketed, particularly in the retail sale of oils and food/beverage infusions. CBD without THC does not get the uder high. Marijuana, generally containing 10% THC, is still federally illegal and is used for medical and recreational use. Marijuana does get the user high.
New Provisions to Banking Hemp-Related Businesses
It is important for credit unions to understand what the 2018 Farm Bill did to legalize hemp, as well as what still needs to be completed before hemp is entirely legal. The 2014 Farm Bill legalized states or universities to grow and produce hemp as part of a pilot program for hemp research. It did not legalize wholesale commercialization or interstate commerce.
As required by the 2018 Farm Bill, the United States Department of Agriculture must develop regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill. The USDA has stated that it expects this plan to be completed by the end of 2019, in time for the 2020 growing season.
In addition, the USDA must review and approve plans submitted by each state that wishes to regulate hemp. This implies that each state that plans to regulate hemp must pass legislation and propose a program to be approved by the USDA. To date, no states have completed all the steps. Ultimately, unless a member falls under the 2014 Farm Bill’s provisions for states or universities to produce hemp, no other hemp business has been federally legalized. Until full approval by the USDA of a state’s program, it will be a risk-based decision for a credit union to bank any cannabis-related business, including hemp, that has been legalized by the state.
It is worth noting that the CBD market is currently under intense scrutiny by the Food and Drug Administration, as the governing body for products marketed by CBD distributors, including cosmetics, food/beverage infusions, and other uses. The FDA has only approved one prescription CBD product to date; this treats rare, severe forms of epilepsy. There is very little information available about the effects of CBD on the body or dose limitations, and the FDA has stated that the agency is not willing to put the public at risk with impulsive approvals.
The new NCUA guidance, however, outlines key policies to include when developing a risk-based program for serving hemp-related businesses:
- Ensure that your Bank Secrecy Act policy is up to date with the decision of whether or not the credit union will provide services to cannabis-related businesses and, if so, which types of business will be served
- Maintain appropriate due diligence procedures and comply with Suspicious Activity Report requirements. It is NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business
- Understand federal and state laws and regulations for each hemp-related business to ensure the operation is fully legal
Serving members in the hemp industry undoubtedly comes with enhanced risk and due diligence requirements. With the passing of the 2018 Farm Bill and the encouragement of NCUA to serve these legalized businesses, the future looks promising for this growing industry. With NCUA as a partner, credit unions will be able to further fulfill their mission within the agricultural community and work with those that may have been overlooked and underserved.
Terri Luttrell is CAMS-Audit with Abrigo, headquartered in Austin, Texas.