From The Jacobsen: Hemp Banking
Banking issues for hemp businesses surfaced again, when federal CARES Act funds arrived on the scene in response to the economic disaster unfolding worldwide. Hemp companies that were prepared for swiftly accessing SBA Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL) funds had existing relationships with banks, some modicum of best practices in their operational plans, and essential financial documents at their fingertips. This is the minority of small hemp businesses, of which many are operated by first-time entrepreneurs, and virtually none of which were developed with conventional bank finance.
The challenges hemp companies encountered with access to funding, along with similar challenges found in the federally illegal MJ industry, prompted refreshed conversation on the SAFE Banking Act. The Jacobsen has followed this legislation since last summer and we’ve commented on the measure several times in the Hemp Bulletin, as at times, passage looked very promising. The legislation easily cleared the House, but encountered resistance by the key committee chair, Mike Crapo (R- ID). Crapo had previously shown some neutrality for the legislation, despite towing a hard line on anything MJ related. His lack of opposition at times may have been misinterpreted as support by SAFE Banking advocates.
The bill is primarily a cannabis bill developed to address banking and accounting issues in MJ, but provisions for hemp were later included. This was intended to give banks the assurances they need to confidently bank hemp businesses, which historically has been tied closely with MJ on a policy level. The nuances of THC content and testing methods that separate MJ from hemp are not in the wheelhouse of mainstream bankers, who are notoriously risk averse, and carry a significant compliance burden already.
A statement released by the Federal Reserve last year was meant to allay concerns by banks to work with hemp growers, clarifying that a Suspicious Activity Report (SAR) need not be filed for hemp producers, but that other hemp companies should still be reported if there is indication of suspicious activity. That release – and all its ambiguity – can be ready here:
The USDA issued updated guidance in April for servicing loan programs through Farm Service Agency (FSA). The suite of loans through FSA should be available in 2020, though eligibility issues are unclear, and the agency says they’ll release more information on these programs soon. Examples of FSA loan programs include beginning farmers loans for farm purchase, farm storage facility loans, and general operating loans. In addition to these traditional ag lending sources, the SBA is now specifically accommodating farmers with emergency funds, something that to date has not been possible. Disaster relief in agriculture historically has come through USDA programs, but lawmakers departed from this precedent in the most recent round of SBA funding.
We commented last week on West Town Bank, one of the select regional institutions banking hemp companies, who announced last week an enhanced suite of offerings for hemp clients. West Town has invested considerable due diligence in establishing a program – “Hemp Banks Here” – for banking hemp, and utilizes third party platform Verileaf for assuring compliance. Requirements for businesses include adequate internal controls and financial documentation, expertise in their field, and in general, a company focus on best practices. West Town is knowledgeable about the pivotal issues affecting hemp banking and compliance with the Banking Secrecy Act. Examples include analytical testing practices and detailed disposal plans for non-compliant hemp, and assurances that the hemp company does not have shared ownership or operational crossover with an MJ related business (MRB).
Stop by the The Jacobsen for more information on the hemp market!