Milwaukee-area hemp businesses have a positive outlook after federal agencies issued guidance clarifying what obligations banks have when serving customers selling hemp-based products.
The joint statement, issued by four federal regulatory banking agencies, seeks to shed light on the legal status of hemp growth and production as it relates to the Bank Secrecy Act and its corresponding regulations.
According to the new statement, banks are no longer required to file suspicious activity reports (SAR) for customers solely because they’re cultivating or selling hemp in accordance with laws and regulations.
In addition to hemp’s legal status, the statement also outlines BSA considerations as well as the USDA’s interim final rule on the production of hemp.
The Federal Reserve Board, the Federal Deposit Insurance Corporation, FinCEN, the Office of the Comptroller of the Currency and the Conference of State Bank Supervisors released the statement in what is essentially the first guidance offered by any of the federal banking regulators on the issue of hemp.
While the 2018 Farm Bill established hemp as a legal agricultural commodity, laws and regulations surrounding hemp are not specific to financial institutions, said Scott Birrenkott, assistant legal director for the Wisconsin Bankers Association.
The statement from federal regulators notes that bank customers are responsible for complying with hemp regulatory requirements, not the banks who serve those customers – a question left unanswered until now.
“In this release, they not only acknowledge the 2018 Farm Bill and USDA’s rules, but these are BSA considerations,” Birrenkott said. “It’s that clarification that is key because the regulators are the ones coming in, making sure banks are following the rules, and potentially hitting them with monetary penalties if they’re not.”
Even with hemp established as legal agricultural commodity in 2018, financial intuitions in Wisconsin and across the U.S. were slow and even hesitant to participate for fear of a federal regulatory crackdown.
In early 2019, multiple bank and credit union customers, such as Sussex-based WI Hemp Scientific, had their accounts closed a few months after being opened. WI Hemp Scientific has since found a state bank to serve the financial needs of the business, said Andy Gould, WI Hemp Scientific chief financial officer.
“We’re optimistic that federal regulators will take the necessary steps to open up banking opportunities for hemp businesses hoping to open accounts with federal banks,” Gould said.
The founders of Waukesha-based Beyond Full Spectrum, a retailer of hemp products, also find the recent clarity on hemp banking protocol to be promising.
“After a long and difficult year with banking and credit card processing issues, we finally have a glimpse of hope of safe and convenient banking with one of the FDIC insured institutions,” Beyond Full Spectrum co-founder Aleksandr Gerasyuta said in a statement.
Despite the pro-hemp banking guidance, Gould is still skeptical and expects a significant lag time as banks react, he said.
“Once other banks see the financial opportunities hemp business owners are bringing to the hemp-friendly banks, we are hopeful others will start opening their doors to hemp business owners,” Gould said.
Birrenkott believes a shift is already happening in Wisconsin with bankers more frequently asking how they can get involved in the hemp industry. However, since the hemp industry is so new to the state, banks still have questions about the crop including cost, price, yield, returns, contracts and markets, WBA president and CEO Rose Oswald Poels said in a statement.
“As the industry grows, the data needed for Wisconsin bankers to make both depository and agricultural lending decisions will also increase and become easier to complete from both a regulatory and operational viewpoint,” Oswald Poels said in a statement.
