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Hemp: A Q&A with VeriLeaf’s Head of Compliance & Strategy

VeriLeaf is excited to share a quick Q&A with our Head of Compliance and Strategy, Jessica Caballero, CERP, CRCM. Jessica has over 10 years of experience in compliance and is a former OCC examiner, consultant, and RegTech compliance advisor. She joins us today to discuss her thoughts on serving the industrial hemp industry

Q: Tell us your thoughts on serving hemp businesses?

JC: Like marijuana, there is a lot of money out there to be deposited. However, relative to marijuana, hemp deposits bring less risk to the institution and require less overhead to manage the risks. Deposits are hard to come by in today’s competitive financial services arena. It is not often institutions come across new industries with steady, high-volume deposits begging to be banked. It is a no-brainer to me. 

Sure, you have to have a well-trained, experienced BSA team; but, don’t most institutions have that already? You pretty much have to in order to survive in the current regulatory environment. For those that don’t, the talent and/or training opportunities are out there.

I think an investment in a stronger BSA program is well worth the cost, if it allows you to bring in these potentially high-volume deposit customers. In addition to increasing funding and improving an institution’s liquidity position, institutions can increase non-interest income by opening their doors to hemp businesses. Only management and the board can decide if the reward is worth the risk, but I expect to see more institutions jump on the train in the near future.

Q: Do you have a different opinion on CBD?

JC: I have a slightly different opinion on CBD. Yes, hemp is federally legal. Yes, logically that means that CBD derived from hemp is federally legal. However, there is still so much grey area here. 

The issue is this – CBD blew up quickly and now lawmakers and law enforcement are catching up and cracking down. When the dust settles, institutions will have more clarity into what constitutes legal CBD. 

Now, CBD products that are not dietary supplements or food may present lower legal, compliance and regulatory risk. If the institution has done their due diligence and implemented the proper controls, then by all means bring in the business. Just know that there is not a blanket of federal legality over CBD. 

We can do a whole separate Q&A on CBD – I’ll just leave it at that for now. 

Q: What are some tips you have for institutions that are watching the industrial hemp industry but haven’t made the decision to open their doors yet?

JC: Don’t be scared. Period. 

Nothing I say in this interview should be interpreted as a warning against this industry. Licensed hemp businesses are legal, bankable business that should have access to the financial system. There are a myriad of higher risk industries that require enhanced due diligence that many institutions take in on a daily basis – think jewelers, money service businesses, cash intensive businesses or third party payment processors. With the right training, talent, and tools it can be done efficiently while still effectively managing the risk. 

Q: Let’s dive in a little on those “Three T’s”. What do you recommend for training, talent and tools?

JC: There is no shortage of training options for financial professionals. There are so many great organizations out there that can take your BSA team to the next level and prepare them to design and implement a plan for the onboarding and ongoing due diligence on these businesses. Examiners are going to want to see that the institution’s staff has the proper experience and training to design and manage the program. Examiners will also want to ensure the BSA Officer has the proper authority to effectively own and manage the risk. Additionally, they will expect to see internal monitoring, testing of controls, and iteration within the program as it matures. 

A well trained, experienced BSA professional will be able to nail this! Talent is key! Larger than talent is culture – setting the correct expectations with talent, assigning responsibility and implementing accountability structures ensure successful daily implementation of the designed controls. Culture is what takes the words out of the documents and make them happen successfully day in, day out. 

Tools, tools, tools. Bankers love tools. 2020 is just months away – we live in a world where we can automate almost anything. Do it! (While still maintaining a smart program to manage vendor risk and model risk, of course!) Lean on software to streamline the workflow and centralize the management of the relationship which includes housing documents, memorializing the due diligence completed at onboarding, and retaining documentation related to ongoing enhanced due diligence activities in one place. Look for vendors that seek to automate the monitoring pieces of your plan like license status and ownership structure. VeriLeaf is doing just that. We have software aimed at relieving the administrative burden for the institution but also for the business. Let’s not forget that this business is your customer or member and customer service is still king.  

One last note on the Ts – don’t underestimate the value of training your client. Educate them on the expectations upfront to set the stage for a positive relationship between the institution and the business. 

Q: How do local, state & federal laws affect an institution’s CDD, EDD, or underwriting requirements for these customers?

JC: The applicable legal requirements should be used as a model for the information that is required from the business as part of the institution’s due diligence and underwriting process. The institution needs to ascertain they are serving a legitimate business operating under the constraints of the law. The institution must also ascertain illicit funds are not moving through their institution. For underwriting, an analysis into the viability of the business must be completed which should consider their ability to maintain legal status. 

For example, the institution should be asking for the license application and licensing document, monitoring for violations and other adverse licensing events, and obtaining results of THC testing activities. All of which parallel what we are seeing out of state draft plans. 

Q: What risks should be identified and managed when designing and implementing a hemp program?

JC: Like any customer, hemp businesses bring risk to the institution; and, to successfully serve hemp, institutions need to identify those risks and apply risk management principles. That is the game of banking!

These businesses are unique, and it isn’t just the BSA department’s duty to know that. An enterprise-wide understanding of how these businesses affect your risk profile is key. 

For example, if you are extending credit or offering cash management services then you should recognize the potential impact on credit risk and applicable financial risk categories. With that being said, the increase in core deposits could positively impact financial risk categories. The general risk of maintaining a deposit account with an industrial hemp business will likely be reflected in compliance, legal, or regulatory risk categories.


I can go on for days about building out the proper system of controls to manage any of the identified risks. I’m always happy to help community financial institutions build out a good risk management program. Reach out and we can dive deeper into how to identify and manage risk for industrial hemp clients. 

Q: How do you see this evolving over time?

JC: Where is the crystal ball when you need one? Honestly, I think serving hemp is only going to get easier. We need clarity from the Agencies. Once we have that, we will all adjust our programs and settle in. Eventually, BSA departments will have their hemp due diligence down to a science just like institutions that have a niche in other higher-risk businesses, like MSBs or casinos. 

Will hemp farmers ever be considered low risk out of the gate? Doubt it. For the foreseeable future they will have specific documentation requirements, require license status monitoring, and require other enhanced due diligence procedures. However, I think a lot of it will become more commonplace and the blurry areas will become more clear. With the proper due diligence, monitoring and documentation in place, BSA departments may be able to justify risk scores other than “high” for these businesses over time. 

Change is fun! Expect more. This is just the beginning. 

Q: What tips do you have for hemp businesses as they look for an institution to work with?

JC: There is no shortage of news coverage on the topic of this unbanked population. If you haven’t heard about it, you live under a rock. These businesses are living and breathing this struggle daily. I think they are well educated on why institutions are struggling with serving the industry. Institutions operate off of regulations and guidance from their regulatory agency. Simply put, they don’t have written permission or instructions on how to take on these businesses. The exception there is credit unions as the NCUA has issued interim guidance for serving hemp. Despite the lack of guidance, the trailblazers are figuring it out. Thankfully!

I would give three main tips to hemp businesses. 

  1. Come prepared. Have all documentation related to your business including formation documents, license application, licensing documents, operational policy, and process documents – everything – readily accessible. If you don’t have a required document, the process is delayed which delays your access to an account. 

  2. Know you have options. Unlike marijuana, you aren’t in a situation where you have to give up a massive chunk of your profits just to maintain a bank account. You are allowed a positive experience and not a – “you’re lucky we’re serving you” – type of relationship. 

  3. Follow the rules. Make sure you give your institution updates in a timely manner, as promised. They aren’t trying to harass you or make your life hard. They need the information to remain compliant. If their program is weak, their regulatory agency may question whether serving your industry is appropriate for the institution which threatens your ability to hold an account there. It is in your best interest to keep the institution in the loop at all times. 

Hemp businesses can register with VeriLeaf to have access to institutions that are serving hemp. VeriLeaf also makes it ridiculously easy for the business to keep the institution up to date on material events. We are passionate about helping the farmers and businesses that support local economies, and we are passionate about helping the institutions that are committed to serving their communities in that way as well. 

VeriLeaf seeks to not only match these businesses with deposit accounts but also with lending products, insurance, and even payment vendors. More to come on that!

Q: Final thoughts?

JC: SARs. We haven’t talked about SARs. I think it is important to note that an institution’s formally documented hemp program should include policies and procedures for monitoring for suspicious activity and the timely filing of SARs. However, institutions are not required to file the FinCEN MRB SARs for hemp businesses assuming they are not also involved with marijuana. I hope that all institutions weighing the risks and rewards know this! It is a big one as it greatly decreases the overhead for bringing in this business.

Also, board involvement is very important. Individuals responsible for the overall administration and success of the hemp program should ensure that the board and executive management are kept well informed. This means everything from disseminating summaries of material changes to the legal landscape to reporting on the specifics of the program like the volume of hemp clients, volume of deposits, relationships exited and whatever else is appropriate to executive management and the board in a timely manner. 

Oh, and one last thing – talk to your exam team before you formally launch a program. You can decide when the time is right. Some may wait until they have a program designed to get buy-in from examiners, and some may feel comfortable discussing it before putting the work into designing the program. You know your exam team, you know your institution – do what feels right. However, I definitely recommend seeking examiner buy-in for any material change in product or service offerings. 

This is a new and emerging industry in our country. Financial services will evolve and adjust as the hemp industry matures. Again, change is fun and this is just the beginning! 

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