Banking on hemp
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While industrial hemp and products made with CBD are legal in Wisconsin, financial institutions are still leery of lending to businesses in the sector, though that could be changing as more banks and credit unions start seeing results from industrial hemp-related businesses over the longer term.
Late last year, the 2018 Farm Bill made an important distinction between marijuana, hemp, and CBD, making hemp legal and setting the stage for each state to create hemp production pilot programs, notes Theresa Wiese, managing director of compliance and risk management for First Business Bank in Madison. As a result, more and more entrepreneurs are starting hemp and CBD-related businesses that require business-banking solutions.
However, in spite of the industry’s projected growth — retail sales of CBD are estimated to hit $16 billion by 2025, says Wiese — financial services providers are taking more of a wait-and-see approach.
“In 2019, a significant amount of confusion in the banking industry has arisen regarding whether, and if so, how, banks will accept hemp and CBD-related entities as clients,” says Wiese.
Recently, Wiese acknowledges, two U.S. Senators felt compelled to send letters to several federal banking and financial regulatory institutions urging them to facilitate financial access for industry businesses.
“While some banks have agreed to offer financial services to the growing hemp industry, many banks have not due to confusion over the legal status of hemp,” the senators wrote. “However, as hemp is no longer a controlled substance, banks should feel secure in engaging with this industry … legal hemp businesses should be treated just like any other businesses and not discriminated against.”
First Business Bank, which operates in Wisconsin and Kansas City, opted to act quickly to help address the financial needs of CBD and hemp entrepreneurs, producers, and growers in Wisconsin and Kansas, says Wiese. But First Business doesn’t yet have much company.
According to a Wisconsin Bankers Association survey of 95 Wisconsin bank CEOs and presidents survey conducted in December 2018, confidence in hemp is low among Wisconsin bankers, despite farmers and businesses looking more closely at the product.
The survey asked two questions regarding hemp.
The first was “If the 2018 Farm Bill changes the federal view of hemp, will your bank actively seek to provide loans to industrial hemp farmers and/or processors in Wisconsin?”
Eighty-three percent of the responding bankers replied “no,” with 17 percent responding affirmatively.
The response rate stayed the same when asked, “Do you think industrial hemp will provide enough revenue to stabilize revenue streams for Wisconsin farmers?”
Wiese says First Business Bank works with some businesses in the hemp and CBD industry by providing banking and treasury management solutions, including collection and payment services, fraud protection, bill pay, and more.
“We’re comfortable lending to some businesses in the hemp and CBD oil industry for various purposes, including equipment related to the processing of hemp and CBD oil, for example,” says Wiese. “Our focus is on offering deposit accounts to these businesses.”
Wiese believes some of the confusion in the financial industry surrounds the fact that hemp and marijuana are the same plant separated only by the concentration of THC (tetrahydrocannabinol). Plus, legal THC minimum levels vary from state to state. “It’s going to take some time for financial institutions to work through their due diligence procedures,” she says.
Summit Credit Union is one local financial institution that was doing business with some CBD companies, but has since closed the accounts of some customers, citing the need for additional clarification oversight from the USDA before opening new accounts to industrial hemp and CBD businesses.
In a statement, Summit President and CEO Kim Sponem said: “Summit Credit Union has always championed the small businesses and entrepreneurs throughout the communities we serve. While the 2018 U.S. Farm Bill legalized the industrial sale of hemp, individual states need to develop some type of certification that will be recognized by our regulators as meeting our regulatory criteria for compliance. To do so without that, financial institutions are under significant risk of being out of compliance with state and federal financial institution laws. As a financial cooperative, we must guarantee we’re in compliance with financial institution regulations and state/federal laws to ensure we’re in the best interest of our collective membership.
“Unfortunately, it is our understanding that we cannot legally consider serving businesses that produce and/or primarily sell hemp or CBD products until the oversight program is in place. Summit Credit Union, in collaboration with the Credit Union League of Wisconsin, looks forward to working with lawmakers to create a pathway to serve this market in the future.”