At the beginning of December, the CBD industry received welcome news: Five different federal banking regulators came together and issued guidance to banks with customers engaged in hemp-related businesses. Under the new hemp guidelines, banks no longer are required to file a Suspicious Activity Report (SAR) for transactions involving hemp companies—an onerous process that made many banks reticent to provide services to such companies. Instead, the guidelines suggest treating hemp businesses like any other customer, creating risk models and filing SARs only if suspicious activity warrants.
Yet, ambiguity remains about exactly which types of businesses are subject to the guidelines. Read in the broadest terms, the guidance applies to every hemp company. However, specific language in the release refers to only commercial growth and production of hemp. There is even a footnote that maintains the U.S. Food and Drug Administration (FDA) retains jurisdiction over foods, drugs, and cosmetics, meaning processors and sellers of hemp-based CBD goods may have to await forthcoming rules.
Regardless how the guidance is interpreted, the release itself is good news for the industry. First, collaboration between the large agencies is no small feat. Agencies such as the ones that issued the guidance are notorious for working in silos. But in this guidance, the board of governors for the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, Office of the Comptroller of the Currency, and Conference of State Bank Supervisors all came together. Moving in lockstep shows there is willingness, momentum, and preparedness to start banking hemp clients—and potentially even the entire cannabis industry.
Banks make money only by providing financial services to clients, and cannabis is big business. According to BDS Analytics and Arcview Market Research, the collective market for CBD sales in the United States will surpass a staggering $20 billion by 2024. While many states have not issued laws as they await further rules from both the FDA and the U.S. Department of Agriculture, banking regulators, for their part, have made a bold statement by giving banks permission to extend services to hemp cultivators and processors (and maybe producers).
If all goes well financially and operationally, regulators potentially could get behind near-future lobbying for banking restrictions to be eased on all cannabis businesses. Such a move would add even more profits for banks. The legal cannabis market already is worth $13.6 billion and could nearly double in five years, according to New Frontier Data.
So, while the guidelines may not have clarified exactly which hemp customers banks can do business with, they at least got the ball moving. Banks can start to serve some hemp customers, the Internal Revenue Service can start to collect taxes from the newly banked hemp companies, and the process starts to create transparency into hemp and cannabis businesses. Once banks—and their regulators—understand hemp companies operate just like any other sector of the economy, we may find the help of a powerful ally in bringing banking to all cannabis companies.
Amanda Ostrowitz is founder and chief executive officer at CannaRegs, a web-based subscription service that provides cannabis-related rules and regulations from state, county, municipal, and federal sources. Previously, she was a regulatory attorney specializing in cannabis regulations and banking laws.
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