When U.S. regulators on Monday let federally insured credit unions offer financial services to legal hemp businesses, the announcement was greeted with jubilation by some Pennsylvania producers of hemp and CBD products.
“It’s huge,” said Max Tuttleman, the Philadelphia-based founder and CEO of Bouquet CBD, a maker of hemp oil products. “It’s the start of legalized banking in the industry.”
Others wondered whether the guidance from the independent National Credit Union Administration (NCUA) would be enough to convince reticent credit unions to work with producers until the U.S. Department of Agriculture and the Department of the Treasury complete their regulations.
The 2018 “Farm Bill” legalized hemp production in all 50 states by taking it off the federal list of scheduled substances. But the bill did not provide any legal guidance to financial institutions, which remained nervous because of hemp’s similarity to marijuana. With few exceptions, the federal government considers marijuana to be as illegal as heroin and LSD.
Without assurances that their assets would not be seized by the feds, nearly every bank and credit union in America has refused to open accounts for hemp-related businesses.
Hemp is a variety of cannabis with very low amounts of THC, the molecule in marijuana that delivers an inebriating effect.
Hemp is primarily used to produce cannabidiol, or CBD, a molecule that some believe delivers health benefits. By itself, the CBD business is expected to grow into a $6.9 billion industry by 2025, according to an Aug. 5 report by Bank of America and Merrill Lynch. Hemp can also be used to produce foods, cosmetics, textiles, building materials, and a host of industrial products. The total market for hemp products could top $20 billion.
Tuttleman said the ruling would allow businesses to access capital through lending that “will help businesses in the sector grow without having to raise money from investors.”
Erica McBride Stark, executive director of the National Hemp Association, called it a “positive turn of events, but I don’t know how much it will affect things in the real world. It leaves it up to the credit unions to decide if all the due diligence they will have to do will make it worthwhile.”
The CEO for the National Association of State Credit Union Supervisors (NASCUS) cautioned members on Tuesday, reminding them to “consider the risks” and "weigh the potential exposure when deciding to serve hemp businesses.”
“Hemp and marijuana look and smell the same, and the difference is that hemp plants contain not more than 0.3% of THC,” said NASCUS’s Lucy Ito. “If a credit union, knowingly or unknowingly, serves a business operating in plants that exceed the 0.3% threshold, the credit union could be serving an illegal marijuana business and would thus be subject to penalties.”
The NCUA said credit unions must have a Bank Secrecy Act and Anti-Money Laundering compliance program in place and stay alert for any illicit activity.
Geoff Whaling, the Allentown-based chairman of the National Hemp Association, said he was pleased with the NCUA’s guidance. But Whaling called it “a short-term fix" until the U.S. Department of Agriculture issues its hemp regulations, which are expected in the fall.
“It’s important for our members and those in the hemp industry to read the small print,” said Whaling, who is also a strategic adviser to the Canadian cannabis giant Canopy Growth Corp. “This guidance only pertains to those who are operating under the 2014 Farm Bill provisions, which would eliminate most of the participants growing for the first time under this year’s Pennsylvania Department of Agriculture process.”
Last year, nearly 80,000 acres of hemp were planted in the U.S. across 24 states, according to Vote Hemp. Montana led the nation with 22,000 acres. Pennsylvania in 2018 produced about 580 acres.
This year, more than 334 farmers in the Keystone State had hemp under cultivation on as many as 8,000 acres. The inaugural Pennsylvania Hemp Summit is set for Oct. 8 at the Lancaster Convention Center in downtown Lancaster.
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