Credit Union and Banking Update for Hemp and Marijuana Industries

Aug 26, 2019

By: Kristen Morris, Associate

Last week, the National Credit Union Administration (NCUA) issued interim guidance stating that federally insured credit unions may provide certain financial services to legally operating hemp businesses. The guidance offers reassurance to credit unions following the 2018 Farm Bill, which federally legalized hemp, but failed to address banking in the hemp industry, leaving the banking industry uncertain as to their capacity to legally serve the industry. The NCUA noted that credit unions will be able to provide the customary range of financial services for business accounts, including loans, to hemp businesses, but that credit unions will still need to ensure compliance with the Bank Secrecy Act and Anti-Money Laundering requirements. This means that, among other things, credit unions still must perform due diligence in maintaining accounts and ensuring that the hemp business is lawfully operating under a state program, and must file Suspicious Activity Reports (SARs) for illegal and suspicious activities. The new guidance will be updated once the USDA finalizes forthcoming regulations and guidelines.

The need for cannabis businesses to have access to banking services continues to gain federal support. Last week at a CannaGather event in New York City Rep. Carolyn D. Maloney (D-NY) stated that she believed that the Secure and Fair Enforcement (SAFE) Banking Act would pass in the House. And at a CannaGather event in Denver, Rep. Ed Perlmutter (D-CO), an introducer of the bill, also stated that the bill has strong bipartisan support and is hopeful it will pass. The need for safety is a strong driver, he said, as currently, marijuana businesses are forced to operate in cash if they cannot obtain banking services, making them targets for crimes. Money laundering and lost tax revenues are also a concern, as businesses operating in cash may be less likely to report income. If passed, the SAFE Banking Act will protect banks from federal prosecution for providing services to cannabis-related businesses so long as those businesses are compliant with the state laws under which they operate.

In today’s story from Bloomberg Tax, however, some industry executives are not too confident that the bill will pass. Rachel Gillette, chair of the firm’s Cannabis Law Practice, told the publication, “People don’t realize how many businesses are affected by legal cannabis. I’ve seen dispensary employees have their bank accounts shut down. I’ve seen a lack of banking options affect service providers, like electricians, who are hired by dispensaries.” Gillette isn’t confident the SAFE Banking Act will see much action, however, despite its 206 co-sponsors. “I’d give it a 3% chance of being enacted,” she said.

In the meantime, dispensaries look to other cashless solutions like apps and blockchain-based technology, but cash remains king. “You will always be cash-heavy if you’re selling cannabis,” said Gillette. “Most consumers pay in cash, and most consumers won’t want to take the extra step to change their cash in for a virtual currency if given the chance—that just doesn’t work.”

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