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Feds clarify it’s OK for banks to serve hemp companies; guidance could ease transactions for hundreds of Nevada hemp growers

Michelle Rindels
Michelle Rindels
A man in a plaid shirt and blue baseball cap standing in a field of hemp

Federal regulators say banks should treat authorized hemp businesses the same as other legal companies, drawing cheers from Nevada cultivators who have faced strict scrutiny in their financial transactions because hemp’s close cousin, marijuana, remains illegal at the federal level.

Hemp is a variety of the cannabis plant used to create everything from textiles and paper to dietary supplements and CBD oil, but that unlike marijuana used as a drug, doesn’t contain enough of the psychoactive substance THC to get a person high.

It was legalized through the federal government’s 2018 Farm Bill, but banks encountering hemp customers have continued to follow the protocols they use for marijuana companies, including reporting their activity to the federal government through suspicious activity reports (SARs) even if state law makes marijuana legal.

“For some, it means you’re getting your accounts shut down and the banks refusing to deal with you,” said Michael Whalen, founder and president of the Nevada Hemp Association. “Getting debit cards issued is a nightmare.”

Senate Majority Leader Mitch McConnell, R-KY, said he learned of bank-related barriers for cultivators even after hemp’s legalization, and requested clarity from federal regulators “to help ease concerns from lawful hemp farmers and producers about the lack of access to financial services.”

On Tuesday, that clarity came in a memo from officials at the Federal Reserve, Federal Deposit Insurance Corporation and others.

“Because hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, banks are not required to file a Suspicious Activity Report (SAR) on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations,” the memo said. “For hemp-related customers, banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants.”

Whalen said the hemp industry has been “cash by choice” — avoiding traditional banking to keep things simple. He called the memo “fantastic news” that should eliminate the need to conduct large transactions with stacks of $20 bills.

“It normalizes our industry to some extent,” he said. “This should make the business more transparent.” 

Phyllis Gurgevich, president and CEO of the Nevada Bankers Association, called the move "a good first step." Among other things, the memo says bank customers, not the bank itself, are responsible for complying with hemp-related regulations.

"Each financial institution must have clear and specific guidance from their regulators on how to provide financial services to those involved in [the hemp] industry. Without this guidance, all institutions are vulnerable to criminal, civil liability and/or regulatory censure," she said. "Our members recognize it is an evolving area of law and regulation. We appreciate the steps being taken."

Nevada lawmakers authorized hemp production through a bill in 2015. Today, there are more than 200 hemp growers in the state.
Hemp must have a THC concentration no higher than 0.3 percent, and the Nevada Department of Agriculture can order the destruction of any hemp that exceeds the threshold. Under the provisions of a bill passed in 2017, hemp growers can sell their products, such as CBD oil, to legal marijuana dispensaries.

Updated at 2:55 p.m. on 12/3/19 to add comment from Nevada Bankers Association.

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