Banking on hemp

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.

Theresa Wiese

“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 April, Summit closed the accounts of Hemp Haven, as well as Waukesha-based Beyond Full Spectrum.

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.”



Clouds of confusion

Hemp and marijuana are both derived from the cannabis plant, though in the legal and regulatory context, hemp and marijuana are generally distinguished based on their THC content, according to a recent legal update from von Briesen & Roper, s.c.

“Hemp contains very little THC as compared to marijuana,” notes the von Briesen article. “This difference is significant because THC is psychoactive, which means that it affects cognitive functions and behavior. In other words, THC causes the ‘high’ associated with marijuana. Unlike marijuana, hemp contains negligible amounts of THC.”

Still, confusion over the difference between marijuana — which is still illegal under federal and Wisconsin law — and hemp isn’t the only cause of reticence on the part of financial institutions to do businesses with the hemp and CBD industry. Many Wisconsin bankers say that not enough is known about the crop including cost, price, yield, returns, contracts, and markets, results from the Wisconsin Bankers Association’s late-2018 survey revealed.

“Now that hemp and all its derivatives have been removed from the Controlled Substances Act, it will be treated as a crop,” a December 2018 WBA new release noted. “As the industry grows, the data needed for bankers to make agricultural lending decisions will also increase and ease their current concerns.”

In Kentucky, where the development of the hemp industry closely parallels Wisconsin, the crop produced $25.6 million in capital improvements and $16.7 million in gross product sales in 2017, the WBA release adds. With numbers like that, the WBA believes it’s likely that bankers, farmers, and business owners will work together to find common ground.

First Business Bank is already seeing it.

“We’ve had a lot of inquiries from all over the state and from law firms and others working with these businesses,” says Wiese. “In its 30-year history, First Business Bank has always operated as an entrepreneurial bank, so we’re used to moving quickly to respond to market and industry needs. Once we started receiving inquiries, we quickly set up internal training and processes to support this new industry in Wisconsin with our banking solutions.”

To chart its course for working with hemp and CBD businesses, First Business is relying heavily on guidelines set by the state of Wisconsin for its hemp production pilot program.

“In terms of what we require from these companies, it depends on what type of company it is,” explains Wiese. “For instance, a company processing CBD oil may have different needs and requirements than a brick-and-mortar retailer or a business processing hemp for industrial use.”

In addition to the normal new account documents request, First Business requests much of the same information the hemp grower or processor supplied to the Wisconsin Department of Agriculture, Trade, and Consumer Protection (DATCP) at the time of its registration through the state’s pilot program, as well as the licenses that DATCP issued.

Regulations within hemp production pilot programs vary by state, and not all states are participating, notes Wiese. So, First Business is seeing third parties that it works with to support its clients’ needs — merchant credit and debit card processors and check printers — choose not to bank these type of clients because of the variances in regulations state to state.

For its part, First Business Bank’s current clients include growers and producers who process hemp and CBD oil, and brick-and-mortar retailers in Wisconsin and Kansas. However, due to differing state laws and licensing requirements, the bank doesn’t currently work with online retailers.

Among the considerations and requirements First Business Bank uses when vetting hemp and CBD businesses are:

  • Requiring a hemp grower and/or processor license and registration prior to account opening;
  • Requiring proof of testing, sampling, and insurance (if applicable); and
  • Requesting information such as: prospective customers, whether the business is transporting hemp or CBD oil across state lines, the type of CBD products the business is making or selling, information about the business’ suppliers and its licenses, sources of the hemp, and more.

“My advice to any business owner is really the same across the board,” notes Wiese. “Work with a financial institution that can support your business throughout its entire lifecycle and your personal financial goals, as well. For hemp and CBD businesses, hopefully the confusion will clear soon in financial services so they’ll have access across the board to more banking and lending options as the industry matures in our state.”

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