I've heard a few claims that the Declaration of Independence was written on hemp paper. I couldn't confirm this and my natural skepticism leads me to believe it's an urban legend, but I'll admit it's possible. Colonial America used hemp in several applications, many of which we're starting to see used again today.
In addition to textiles, hemp products include oils, building materials, and food. Some quick research claims hundreds of possibilities, which I'm inclined to believe based upon the wide variety of existing products. To take advantage of this versatility during a tough part of the cycle, many Wisconsin farmers are diving into the industry; with our state's favorable weather and soil conditions, it appears the industry will only continue to expand. Two recently passed pieces of legislation—2017 Wisconsin Act 100, the Wisconsin Department of Agriculture, Trade, and Consumer Protection's (DATCP) Industrial Hemp rule, and the 2018 Farm Bill—have lowered legal barriers to the industrial hemp industry, further spurring its growth.
As of Jan. 2, 2019, DATCP has received 413 total Hemp Grower and 244 total Hemp Processor applications for a license and/or 2019 annual registration. I anticipate that, for those applications that are approved, Wisconsin banks will see growers, processors, and even retailers looking for deposit accounts and eventually, loans. Many already have. I have received numerous calls through the WBA Legal Call program asking, "Can we bank these customers?"
The answer is yes, but as with anything, you must consider the compliance risk. While growing, processing, and selling hemp products is legal, it also is regulated, and banks should always strive to know their customers. To that extent, consider what information your bank wants from its potential hemp customers. Currently, there are no rules or regulations (beyond your typical BSA considerations) that dictate what you must ask, so it will be a matter of policy. I'd recommend considering some of the following questions:
- Is your customer registered with DATCP?
- Can they provide documentation that their licensing is up to date?
- Do they submit samples for regular testing?
- Who do they buy/sell to?
- If they are a grower, do they use licensed seed?
- If they're a retailer who may not be required to register with DATCP, who do they buy from (and is that seller licensed)?
These questions become even more important on the loan side, where you must consider additional underwriting and collateral components.
Another important consideration: we are still awaiting the Federal Banking Agency's response to hemp's legality, so it might be worth reaching out to your regulator to understand what, if any, exam expectations they have.
Another common question I've been hearing—this time from producers—is, "Why won't my local bank give me a checking account?" I am quick to explain the regulatory burden that banks face, the additional resources required to learn about this brand new industry, and that patience is a virtue. I do appreciate the hemp industry's desire for deposit accounts. Hemp has long been a cash industry, and these customers are eager to work with Wisconsin banks who, in their community, are the experts at handling money. Deposit services such as checks, debit cards, and online banking are tools they've been without in the past.
Keep in mind that hemp businesses that follow the requirements are legal. These business activities do border potentially illegal activity, but banks are no strangers to such situations. For example, if I want to open a bar, liquor store, or own and operate ATM and gaming machines, I must meet certain requirements. Industrial hemp is no different in that, while legal, it imposes requirements upon those seeking to do business. The primary difference is that it is new and carries its own unique requirements.
I would encourage Wisconsin banks to learn more about hemp, what it is, how it is used, and understand its legal requirements. WBA will continue to provide resources and updates as the industrial hemp industry continues to grow.