The Farm Bill should clear up any questions about hemp’s legality and should allow hemp businesses to bank like any other business. However, small banks can’t be counted on to be up to date on hemp law, so a bit of persuasion might be required. Below is a letter I wrote to my bank. It was successful in getting them to openly allow hemp businesses. The formatting will probably be messed up when I try to post it.
In addition to growing hemp and extracting CBD, I am a practicing attorney in Colorado. I exclusively practice Cannabis law, and I am one of the few cannabis attorneys in the state that specializes in hemp.
Feel free to use this letter as a basis for your own correspondence with financial institutions, but do not just copy and paste it. I am not your attorney, this is not legal advice.
To whom it may concern,
With the passage of the 2018 Farm Bill (FB18), hemp and hemp products with less than .3% delta-9-tetrahydrocannabinol (THC) are federally legal. Cannabidiol (CBD) oil is one such product. As a result banks may treat hemp and CBD businesses like any other legal businesses. However, to fully understand the current laws concerning hemp and CBD, some background is necessary.
It has been claimed by many sources, including Wikipedia as of December 2018, that CBD is a schedule 1 drug under the Controlled Substances Act (CSA), but CBD is not, nor ever has been, listed as a schedule 1 substance by the CSA. Yet, until the Agricultural Act of 2014, virtually all CBD was a schedule 1 substance. How can a substance that isn’t classified as a schedule 1 substance be a schedule 1 substance? The CSA doesn’t just ban listed substances. The prohibition includes “any material, compound, mixture, or preparation, which contains any quantity of the [listed substance]”. 21 U.S.C. §812©©. Virtually all CBD is derived from the flowers of cannabis, and prior to 2014, all cannabis was considered marihuana (the spelling in the CSA)–a schedule 1 drug. As a preparation of marihuana, CBD is a schedule 1 substance. Synthetic CBD was completely legal, but synthetic CBD is difficult to produce and consequently rare.
In Section 7606 of the Agricultural Act of 2014 (7 U.S.C. 5940), the term “industrial hemp” was defined as “the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” In the section, industrial hemp grown in accordance with the rules outlined was exempted from the CSA and all other federal laws prohibiting marijuana. The term cannabis was effectively divided into marihuana (banned by the CSA) and industrial hemp (which was legal to grow, though subject to many regulations.)
While growing industrial hemp could be legal, there still was confusion about the legality of the commercial growth and sale of hemp and derivatives such as CBD. There was an incredible amount of nuance to the debate, and informed, reasonable minds differed in opinion, but the discussion was rendered moot when President Trump signed the Farm Bill of 2018 on December 20, 2018.
FB18 largely abandoned the term ”industrial hemp” for newly defined and broader term “hemp”. Subtitle G–Hemp Production of FB18 alters section 297A of the Agricultural Marketing Act of 1946 to define hemp: “The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” The most important distinction from the previous definition of industrial hemp is that “derivatives, extracts, [and] cannabinoids” are now included in the definition of hemp. CBD oil is a derivative of hemp made by extracting the cannabinoids from hemp, so it clearly fits this definition.
The Section 12619 of FB18 also modifies the CSA to exclude hemp (as defined above) from the listed substances marihuana and tetrahydrocannabinol:
SEC. 12619. CONFORMING CHANGES TO CONTROLLED SUBSTANCES ACT.
(a) IN GENERAL.—Section 102(16) of the Controlled Substances Act (21 U.S.C. 802(16)) is amended—
(1) by striking ‘‘(16) The’’ and inserting ‘‘(16)(A) Subject to subparagraph (B), the’’; and
(2) by striking ‘‘Such term does not include the’’ and inserting the following:
‘‘(B) The term ‘marihuana’ does not include—
‘‘(i) hemp, as defined in section 297A of the Agricultural Marketing Act of 1946;”
(b) TETRAHYDROCANNABINOL.—Schedule I, as set forth in section 202© of the Controlled Substances Act (21 U.S.C. 812©), is amended in subsection ©(17) by inserting after ‘‘Tetrahydrocannabinols’’ the following: ‘‘, except for tetrahydrocannabinols in hemp (as defined under section 297A of the Agricultural Marketing Act of 1946)’’.
Thus, all cannabis with less than .3% delta-9 tetrahydrocannabinol by dry weight is completely legal under federal law. All products, derivatives, extracts and formulations of such cannabis are perfectly legal federally.
So does this mean that hemp can be legally grown and processed in states where it was illegal prior to FB18? Nope. While FB18 makes hemp federally legal and sets minimum standards for the regulation of hemp production, it explicitly does not preempt state law further restricting hemp farming:
‘‘(3) RELATION TO STATE AND TRIBAL LAW.—
‘‘(A) NO PREEMPTION.—Nothing in this subsection preempts or limits any law of a State or Indian tribe that— ‘‘
(i) regulates the production of hemp; and
(ii) is more stringent than this subtitle.
It is hard to get more stringent than banning something completely, and a ban is certainly a form of regulation, so a state can just say no. Additionally, the USDA or the state will have to design and implement a plan in states that are currently silent on the issue before someone can start growing in such a state, for example Indiana.
Can you sell CBD products in states that, unlike Indiana and Colorado, have classified all cannabis as marijuana? Probably not, but maybe. FB18 specifically mentions that states can restrict hemp production, but it is silent with regards to state restrictions about distribution and possession of hemp. This is a gray area that requires an analysis of the Supremacy Clause of the US Constitution and the Doctrine of Preemption that exceeds the scope of this letter.
Can States ban hemp from passing through them? No. FB18 specifically forbids this:
(b) TRANSPORTATION OF HEMP AND HEMP PRODUCTS.—
No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) through the State or the territory of the Indian Tribe, as applicable. (Agricultural Improvement Act of 2018, Section 10114(b)).
Therefore, one can transport hemp through any state.
So what does this mean for banks? Can they take hemp money or give loans to hemp businesses? Yes. While somewhat more regulated than corn, businesses producing hemp under current state hemp programs and the state and federal regulation outlined in FB18 are just as legal as corn farms. Some people might suggest that banks shouldn’t deal with hemp and CBD businesses because CBD products could be made from marijuana or that a product made from hemp could have too much delta-9-THC and thus be illegal. However, corn can easily be turned into moonshine. Whiskey legally made from corn can be sold to minors. There is a possibility that any otherwise legal business could engage in illegal activity or violate the regulations governing it. A bank with a good faith belief that a hemp company is engaged in legal business can deal with them as they would any other business.
Do banks have to abide by the FinCEN’s increased due diligence requirements for marijuana businesses? No. Hemp is not marijuana.
If a bank is particularly worried about the legitimacy of an existing hemp farm, it would be reasonable to ask for a copy of the business’s hemp permit or registration. However, it would be completely reasonable for a business to open a bank account in anticipation of being granted a permit, so a new business may not have such credentials. For example, if a person was applying for a mortgage to buy a farm to grow hemp, they would obviously not have a permit to grow on property they do not yet own. If a bank is concerned about the legitimacy of a company currently distributing CBD, they could ask for lab tests showing that their product contains less than .3% delta-9-THC–a legitimate business should have this information. However, the same caveat about new businesses applies.
There is no longer any question about the legality of the billion dollar, and rapidly growing, hemp industry. Banks are free to deal with hemp business as they would any other agricultural or agricultural product business.
Andrew B. Brown J.D.