Armanino Blog

Cannabis Industry: New Banking Changes Are Underway

by Mike Goral
December 12, 2019

In joint guidance issued on December 3, 2019, several U.S. banking regulators recommended that hemp businesses not be treated with any more suspicion than other bank customers. This is welcome news for the industry.

Under the Farm Bill, which was passed by both chambers of Congress and signed into law by President Trump in December 2018, hemp producers no longer fall under the strict regulatory provisions of the Controlled Substances Act. This in theory should have allowed hemp companies to have full access to the U.S. banking system. The reality, however, was that most financial institutions were still hesitant to service them. As a result, for most of 2019, hemp companies struggled to get the most basic banking services.

Hemp products are made from plants similar to the cannabis plants that produce marijuana, but they are cultivated to have far less tetrahydrocannabinol (THC), the chemical that produces a “high” when ingested. Parts of the plant are used for multiple purposes. For example, the stalks can be used to make fabric, and the seeds can be processed into oils that are ingredients in food products and topical creams, to name a few common uses.

As a result of pressure from law makers in Congress and hemp companies, the Federal Reserve, the Federal Deposit Insurance Company, the Financial Crimes Enforcement Network (FinCEN) and other state and federal regulators issued a joint guidance entitled “Providing Financial Services to Customers Engaged in Hemp-Related Businesses”.

This guidance was intended to “provide clarity regarding the legal status of commercial growth and production of hemp and relevant requirements for banks under the Bank Secrecy Act (BSA) and its implementing regulations.” The guidance informed banks that they can now treat hemp producers like other customers, as long as the companies can prove they’re following state licensing requirements.

Although there will be many issues with implementing these guidelines in the actual marketplace, the guidance is good news for hemp businesses. It is important to note that while the guidance did not provide any direct relief to THC cannabis businesses, it did suggest that banks servicing the marijuana business follow the previously issued guidelines from 2014 under FinCEN-2014-G001-BSA, “Expectations Regarding Marijuana-Related Businesses.”

Finally, the joint guidance also mentions that additional FinCEN guidance will be issued in the future. This will provide added assurances to a banking community that has been too hesitant to service hemp companies due to fear of sanctions from bank regulators.

Have questions on the latest guidance? Reach out to Mike Goral, Tax Partner In Charge of Cannabis.

December 12, 2019

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