Safe Banking and Hemp: Working Toward Resolution

At present, most if not all banking service providers take a risk-management approach to hemp business customers that presumes that they may be held liable for their clients’ compliance with USDA regulatory requirements, even though these laws have no explicit bearing on the legality of hemp in commerce. (All hemp is legal for commerce nationwide if it meets the statutory definition of hemp, without regard to the USDA Rule).

This creates an onerous burden on banking service providers and their clients that is a significant (perhaps the most significant) factor contributing to the refusal of many providers to offer services to hemp businesses, and explains the excessive fees charged by those providers who do choose to offer them. Thousands of hemp business all across the country contend with this issue, particularly with respect to obtaining payment processing for credit card transactions, which are the lifeblood for most hemp businesses.

These problems arise largely from the duality in current law pertaining to hemp: one legal standard for hemp products—the Federal definition of hemp in statute—and another for hemp production in the U.S.—the USDA Hemp Rule, which applies only for production on a small percentage of acres licensed for such production.

While NIHC remains hopeful that legislation will soon rectify this duality by redefining hemp such that the USDA Rule will be revised to reflect the same legal standard, this has yet to occur and this duality will nevertheless persist for products made before such a revision is enacted.

NIHC strongly supports the normalization of banking services for hemp businesses, and we welcome the concerted effort by proponents of the SAFE Banking Act to achieve this through the bill’s hemp provisions (Section 11).  Despite the unambiguous Federal legalization of hemp in 2018, businesses engaged in hemp commerce continue to face great difficulty accessing banking services due to the perceived lack of regulatory clarity. Even when businesses are able to access banking services, the costs are exorbitant—much like the struggles faced by businesses engaged in marijuana, which remains illegal under Federal law. By providing regulatory clarity to banking services providers, the bill would go a long way toward relieving these difficulties.

However, we are concerned that the bill’s definition of ‘hemp-related legitimate business’ will cause the bill to fall short in achieving this desired outcome. This is because the definition will exclude businesses that buy or sell hemp produced on 76% of the acres licensed for hemp nationwide and as hemp produced outside the U.S. That would significantly hinder the industry’s domestic growth and potentially erecting a technical barrier to trade (TBT) in hemp on the export market as well.

The problem presented by the proposed legislation is that hemp produced on 76% of the acres licensed for hemp nationwide in 2020 (including 4 of the country’s 5 largest state programs) is not subject to USDA regulations pursuant to the 2018 Farm Bill because they are in states currently under 2014 Farm Bill authorities for hemp production. Even after the 2014 authorities expire at the end of 2021 (unless Congress extends them again), hemp goods that were produced under 2014 authorities will remain lawfully in commerce long thereafter. Hemp produced outside the U.S. is also not subject to the USDA regulations.

Even though the definition states “where applicable,” this re-introduces the regulatory uncertainty that caused banking problem in the first place. Banking services will either continue to shun hemp businesses, or incur excessive costs for risk mitigation, based on the perceived hazard that the bill’s protections may not apply where the business engages in hemp whose production is not subject to the USDA regulations.

We also see cases where regulators themselves adopt a similar risk-mitigation posture. A case in point is the policy promulgated by USDA Rural Development that excludes hemp producers in 2014 Farm Bill states from eligibility for funding under the Value-Added Producers Grant program, thus depriving most of the industry and state economies of much-needed investment in hemp processing capacity.

If regulations issued by USDA are vulnerable to such misinterpretation, then regulations by other agencies with far less understanding of these complexities (such as those that will administer the SAFE Banking Act) are all too likely.

Ironically, without these technical corrections, the SAFE Banking Act could normalize banking services for legitimate marijuana commerce and fail to do so for most legitimate hemp commerce.

The NIHC continues to work with policy makers in both the House and the Senate to look for ways to make these technical changes become law.