By Elizabeth M. Young LaBerge
State legislatures around the country continue to pass a variety of legalization laws related to marijuana, hemp and other cannabis derivative products. At the federal level, the 2018 Farm Bill legalized certain hemp products. The result is a growing national market for hemp and a state-by-state market of quasi-legal medical and recreational marijuana and other cannabis-derivative products. While the state of play regarding marijuana banking has not changed significantly since 2013, there have been a few developments worth reviewing: the passage of the 2018 Farm Bill, NCUA’s issuance of hemp guidance and NCUA’s reaffirmation of its prior position on marijuana.
The 2018 Farm Bill: Industrial Hemp and Cannabis
The 2018 Farm Bill included the Hemp Farming Act of 2018, which legalized industrial hemp. The bill defines hemp as a derivative of cannabis sativa. The key difference between hemp and marijuana is the THC level. THC is the compound found in cannabis that creates an intoxicating effect. Industrial hemp may not contain more than 0.3 percent THC and does not cause a “high” effect. Under the bill, industrial hemp products are legal. Further, industrial hemp has been removed from the Controlled Substances Act’s (CSA’s) definition of marijuana and thus allows for a more expansive cultivation of industrial hemp.
Cannabidiol, also referred to as CBD, is a derivative of the cannabis plant that can be extracted from hemp. CBD is also not intoxicating, though many use it to soothe pain, mood or mental conditions. The farm bill does not explicitly legalize CBD, but it is a legal substance under the bill only if it is extracted from industrial hemp containing less than 0.3 percent THC and is produced in a manner consistent with the bill. The Food and Drug Administration maintains control over hemp where it is contained in food, drugs and cosmetics. The agency remains steadfast in its position that it is illegal to market CBD in food or as a dietary supplement.
Hemp cultivation will be strictly regulated by both state and federal powers. The bill establishes a multilayered process for a state to begin cultivation of hemp. To begin farming hemp, the state department of agriculture must seek approval from the governor, who must curate a plan for hemp cultivation to be submitted to the secretary of the U.S. Department of Agriculture (USDA). Once the USDA secretary approves of the plan, the state must implement a regulatory system to comply with federal hemp cultivation procedures.
The intention of the USDA and the FDA is to ensure that states regulate, track and license hemp production from “seed to sale.” USDA must issue rules and regulations for providing a structure that state governors and agricultural departments should emulate when drafting their own hemp cultivation plans. Prior to release of the rules, the USDA noted hemp producers should not rely upon the 2018 Farm Bill hemp production provisions until the rules on production are finalized. These regulations provide critical guidance for credit unions performing due diligence regarding whether hemp producers are in compliance with the law.
NCUA Releases Hemp Banking Guidance
In a recent regulatory alert, NCUA provided some considerations for credit unions when serving lawfully operating hemp businesses. The agency expects these credit unions to be aware of all the applicable laws and regulations as well as the unique risks involved with serving these businesses. Updates should be made to the credit union’s BSA/anti-money laundering compliance program to mitigate the risks involved, including maintaining appropriate due diligence procedures, monitoring for any illicit or unusual activity and ensuring appropriate Suspicious Activity Reports (SARs) are completed. NCUA also stresses that any lending to hemp businesses should conform to its business and commercial lending rules and to safe and sound commercial lending practices, including underwriting that evaluates the business’s management, experience and financial condition.
NCUA’s Position Following Rescission of the Cole Memo
Stuck between conflicting state and federal laws, the U.S. Department of Justice under the Obama administration issued the Cole memo in 2013, indicating the department’s intention to prioritize prosecutions of marijuana activities that pose actual risks to the safety and health of the public, rather than activities conducted under state laws that include sufficient regulations and controls.
Under the Trump administration, former Attorney General Jefferson Sessions published a one-page memorandum rescinding the Cole memo, opening the door to more aggressive prosecution of federal marijuana laws. Current Attorney General William Barr has yet to restore the Cole memo, and it remains unclear whether he will leave the Sessions memorandum in place. Barr did announce that the DOJ will not “go after” any institutions that both adhere to the Cole memo and comply with state marijuana regulations, but he did not indicate an intention to replace or reinstate the guidance.
Prior to the rescission of the Cole memo, many credit unions that serve marijuana related businesses reported that NCUA was examining them for compliance with the memo’s priorities and FinCEN’s guidance. Once the memo was rescinded, NCUA did not issue any formal guidance or statement on how they would view these accounts going forward. To date, NCUA has not issued any formal guidance on serving marijuana-related businesses.
Earlier this month, NCUA Chairman Rodney Hood stated that, with regard to credit unions servicing cannabis-related businesses, “It’s a business decision for the credit unions if they want to take the deposits. We don’t get involved with micromanaging credit unions.” He indicated that a credit union wishing to serve marijuana-related businesses must follow applicable regulations, including all BSA requirements and FinCEN’s guidance, and assess and mitigate the risk posed by cannabis-related businesses appropriately. However, NCUA will not be citing credit unions for doing business with a cannabis-related business in and of itself. This statement appears to confirm that NCUA’s position regarding these issues has not changed following the rescission of the Cole memo. While this still leaves credit unions serving marijuana-related businesses in a gray area, having a reaffirmation that the rescission of the Cole memo does not affect NCUA’s view of these accounts is nonetheless helpful.
Elizabeth M. Young LaBerge is senior regulatory compliance counsel for NAFCU.
- Compliance Blog: NCUA issues hemp banking guidance
- Compliance Monitor: The Farm Bill and other developments in hemp banking (member-only)
- Issue Brief: Marijuana banking
- FAQs: Marijuana banking for credit unions