Hemp was the wild, wild west of crop production in 2019. Licensed acreage surged despite the regulatory limbo, mismatch of supply and demand and questions about how to test for THC, the psychoactive ingredient that differentiates hemp from marijuana.
USDA has taken a number of steps to provide stronger regulatory clarity, issuing an interim final rule and approving state plans for how to oversee the crop's production. The agency has even outlined the parameters for crop insurance to cover hemp. Please read this for more: https://www.dtnpf.com/…
The wild world of hemp production may be a tad more tame in 2020, but farmers who want to grow hemp still face significant challenges getting financing, and its cousin, marijuana, is to blame. Despite some form of legality in 33 states, marijuana is still illegal at the federal level, leaving banks trapped between their mission to serve the financial needs of their communities and the threat of federal enforcement.
"Any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk," the American Bankers Association position states. "In addition to growers and retailers, there are vendors and suppliers, landlords and employees that are indirectly tied to the cannabis industry, thus posing legal risk for banks serving such entities and individuals, as indirect connections to marijuana revenues are hard, if not impossible, for banks to identify and avoid."
While the ABA policy referred specifically to marijuana, the same is true for hemp. It was a hot topic at the organization's National Agricultural Lenders Conference last fall, although a vast number of the lenders I visited with there said they were waiting on further guidance from their regulators -- the Federal Reserve System or the Federal Deposit Insurance Corporation -- before dipping their toes into the burgeoning market.
That guidance landed in December, clarifying that banks aren't required to file suspicious activity reports on hemp production and emphasizing that it's the grower's responsibility to be in compliance with applicable regulations.
Earlier this week, the Farm Credit Administration sent a memo to lending institutions in its network on how to assess whether financing hemp operations fits into the institution's lending strategy. For institutions that move forward, the memo also suggests a number of questions the banker needs to ask and documents to ask for. You can find that memo here: https://ww3.fca.gov/…
Now that there's some guidance in place, both from USDA and regulatory bodies, the decision on whether or not to lend to hemp operations is up to each lending institution. I'm sure there will be some that see the opportunity and decide there's enough regulatory certainty to move forward. But they are, after all, bankers, and they didn't get the reputation of being conservative by chance.
So while regulators have made attempts to open the door, I suspect most lenders will continue to wait and see.
Katie Dehlinger can be reached at firstname.lastname@example.org
Follow her on Twitter at @KatieD_DTN
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