Not only did banking hemp just get easier and more profitable, prohibitions on providing financial services to Marijuana growers, processors and sellers (“MRBs”) may be further reduced.

In conjunction with state bank regulators, this week four federal agencies issued a statement fortifying hemp cultivation’s legal status and removing costly compliance requirements preventing banks from providing financial services to hemp related businesses.

Beyond enabling hemp growers to access the essential business tool of banking, the statement underscores the federal government’s momentum in rolling back financial services and other cannabis industry related prohibitions.

“Profitability” – Not “Legality” – Was Problem

Because Controlled Substance Act, 21 U.S.C. §§ 801, Et. Seq (1970) (“CSA”) prohibits marijuana’s “manufacture, distribution, and dispensation” and any transfer or deposit of monies yielded from cannabis sale may be deemed “money laundering” in violation of the Bank Secrecy Act, 31 U.S.C. §5311-5330 (“BSA”), most banks and credit unions (“Financial Institutions”) refused to provide either hemp or marijuana related businesses with financial services.

In a February 14, 2014 dated “Guidance”, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) clarified that banks may provide financial services to MRBs consistent with BSA obligations imposing costly compliance requirements including “Suspicious Activity Report” (“SARs”) filing (“FinCEN Guidance”). Three types of SARs filings are required: (1) “Limited” if providing financial services to an MRB not violating any state law or Cole Memo priority; (2) “Priority” if reasonably believing that an MRB violates state law or Cole Memo priority; and (3) “Termination” if facilitating effective anti-money laundering compliance requires terminating an MRB account.

The FinCEN Guidance’s lack of clarity, coupled with Financial Institutions’ overabundance of caution, imposed this “banking MRBs prohibition” on hemp growers, processors, and sellers depriving them of depository and merchant services, i.e., where a third-party accepts, processes, and settles payment transactions like through a credit card or online payment processing.

Further, due to enormous BSA and FinCEN Guidance compliance costs, only a small fraction of nation’s 11,954 banks have been capable of profitably provided financial services to hemp and marijuana related businesses.

Hemp Banking Prohibition Lifted

On December 3, 2019, in conjunction with the Conference of State Bank Supervisors, FinCEN, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a statement clarifying the BSA requirements for providing financial services to licensed hemp growers (“Statement”).

Emphasizing that banks are no longer required to file SARs for hemp-related businesses engaged in licensed hemp cultivation, the Statement reinforces hemp’s 100% legal status, the U.S. Department of Agriculture’s (“USDA”) interim final rule on hemp production, and the BSA considerations when providing banking services to hemp-related businesses. The Statement also indicates that, after reviewing and evaluating the USDA’s interim final rule on hemp cultivation, FinCEN will issue additional guidance.

Beyond enabling hemp growers to access the essential business tool of banking, the Statement signals the momentum with which federal government is rolling back cannabis industry prohibitions. By chipping away at the FinCEN Guidance’s application to hemp related business, the Statement provides a foundation for removing SARS filing requirements for banks providing financial services for marijuana hemp-related businesses engaged in licensed cultivation.