Hemp Banking Guide For 2023

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This hemp banking guide for 2023 is intended for anyone looking to venture into the hemp business which is currently valued at USD 4.71 billion with an expected revenue-based CAGR of 15.8% in this period.

With such kind of financial potential, hemp farmers finally have cause to celebrate because laws around hemp banking are changing for the better.

Below is an overview of the industry and everything that entails hemp banking in 2023.


History of US Hemp Banking

In December 2019, the Federal Reserve System together with the Financial Crimes Enforcement Network (FinCEN) gave a directive to stop banks from filing Suspicious Activity Reports (SARs) for customers in the hemp business.

Prior to this, hemp businesses could not access banking services from traditional banking systems because of the stringent and often prohibitive process of getting verification. To further complicate things, hemp businesses were forced to operate on a cash basis increasing the risk for robbery and theft. This served as a great deterrent for entrepreneurs seeking to venture into hemp as a business. So this move by the regulatory bodies is very welcome by the industry.

This change was precipitated by the passage of the 2018 Farm Bill which legalized hemp at a federal level. This bell removed hemp from a schedule 1 controlled substances category and reclassified it as an agricultural commodity.

Marijuana which is closely related to hemp remains as a schedule 1 substance. The bill differentiates marijuana from hemp by the amount of tetrahydrocannabinol (THC) in hemp cultivars. THC is the main psychoactive compound in hemp which is responsible for the typical marijuana high.

The December release however failed to address the anti-money laundering (AML) requirements for banks transacting with legal hemp businesses. The FINCEN 2014 Guidance still remains effective, apart from the removal of the SAR requirement. This means that banks still need to carry out “enhanced” due diligence for hemp business. It would be interesting to know how this affects hemp banking eventually. Will some banks still hold back their services because of this caveat?

The regulatory authorities may continue to deregulate hemp banking in the future and remove all ambiguities.

Hemp Regulatory Oversight

Hemp is regulated by the US Department of Agriculture at a federal level and the state and Indian tribes at their respective levels. The state and Indian tribes are required to submit their proposed hemp plan to the USDA for approval. The plan must include the following elements:

  • Tracts of land allocated for hemp cultivation and how they will be monitored
  • Procedures for hemp testing to ensure that the THC levels do not exceed 0.3%
  • Hemp disposal plans
  • Hemp inspection and monitoring plans
  • Resource allocation for the hemp program

Currently, 47 states are in the process of creating hemp cultivation and production programs and issuing licenses for hemp cultivation. Just recently, Florida rolled out its hemp program which will allow private farmers to grow hemp in the sunshine state. The USDA is also in the process of approving the hemp programs in the states. The states are responsible for offering regulatory oversight for hemp production in their respective jurisdictions and banks need to comply with these laws.

What is a Legal Hemp Business in the US?

For Hemp Businesses to be considered legal in the US, they must meet the following conditions:

  • They must be licensed by the state and tribal regulatory authorities
  • They must comply with all the laws set by the USDA as well as the state laws regarding hemp
  • The THC limit in the hemp should not exceed 0.3%

What is the Safe Banking Act?

The Safe Banking Act is a bill that ensures that banks do not transact with illegal marijuana businesses. Prior to the 2018 Farm Bill, hemp businesses were also included in the Safe Banking Act. This meant that banks were not free to transact with businesses involved with hemp at any level.

The Safe Banking Act compelled banks to file SARs reports and anti-money laundering reports when they suspected transactions linked to hemp businesses.

Fortunately, this was changed last year and banks no longer have to file SARs for hemp businesses. Hence, the banking sector has been “greenlighted” to deal with this potentially lucrative sector.

What is Hemp Banking Guidance

The USDA created the Hemp Banking Guidance to streamline the process of banking the hemp industry. This guidance was released soon after the regulatory bodies issued a statement indicating that banks would no longer be required to file SARs reports for hemp businesses. It is intended to guide banking institutions as they onboard the hemp sector to traditional banking.

The Hemp Banking Guidance highlights the following issues:

  • Hemp is legal under federal law for cultivation and processing
  • Banks and other financial institutions are not longer compelled to file SARs relating to hemp related transactions; for as long as they are complying with federal and state laws regarding hemp
  • Should the bank suspect suspicious activity not in compliance with federal or state laws they are still mandated to file SARs.

Banking the Hemp Sector

Banking the hemp sector requires careful planning and meticulous execution to prevent coming into conflict with the law. Hemp is still a highly regulated industry and banks need to ensure that the hemp transactions they process are in full compliance with the law. The USDA interim final rule which will be in effect until the end of 2023 presents its unique set of challenges as well. However, banking institutions that will be able to navigate through this hiccups stand to benefit in the end. The banks will need to identify and eliminate potential risks in order to reap from this nascent industry. Early entrants stand a chance to make huge profits by providing competitive banking services for the hemp industry.

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