The below article is the Special Focus section of the January 2019 Compliance Journal. The full issue may be viewed by clicking here.
WBA expects that many Wisconsin banks will soon be approached by customers engaged in the industrial hemp industry, if they have not already. Wisconsin possesses favorable weather and soil conditions for the crop, and many farmers appear to be exploring the industry. As of January 2, 2019, the Wisconsin Department of Agriculture, Trade, and Consumer Protection (DATCP) has received a total of 413 Hemp Grower, and 244 Hemp Processor applications for a license and/or 2019 annual registration to participate in Wisconsin’s pilot program. Growers, processors, and retailers have already begun searching for banks offering deposit services and soon, loans. WBA has already received several calls through the WBA Legal Call Program questioning the legality of banking industrial hemp customers.
There are no rules or regulations prohibiting banks from doing business with customers legally engaged in the hemp industry. Growing, processing, and selling hemp products is legal, but it is regulated. Banks should implement policies and procedures to work with their customers accordingly. There is no regulatory guidance on the topic, but, arguably, none is necessary. Banks should follow BSA, safety and soundness, and business considerations already in place. Policies and procedures will need to be written or updated, as appropriate for this new business, but there are no new rules governing banks.
To that extent, it is important for banks to understand the hemp industry so they can understand their customers. WBA recommends considering the following matters:
- 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 considerations become even more important when it comes to lending, where banks must consider additional underwriting and collateralization components. Furthermore, as the hemp industry develops, the rules regulating it will change, and the business will continue to develop. Bank policies and procedures must be designed to evolve in tandem with this new industry.
Hemp has long been a cash industry, and deposit services such as checks, debit cards, and online banking are tools the industry has been without in the past. WBA has observed that farmers and growers appear eager to work with Wisconsin banks who are the experts in their community at handling money. Hemp businesses that follow Wisconsin’s pilot program are legal. While this situation is new, it is analogous to others. For example, business customers that open a bar, liquor store, or own and operate ATM and gaming machines are regulated and must meet certain requirements. From a BSA, safety and soundness, and general know-your-customer standpoint, banks have policies and procedures in place to consider those requirements. Industrial hemp, while new and carrying its own unique requirements, should be no different and should be addressed by policy and procedure.
WBA encourages 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. For further discussion of the hemp industry in Wisconsin and the pilot program’s requirements, join us at the WBA Compliance Forum with sessions running from February 19-21 where we will be joined by a speaker from DATCP. For more information, visit our website at https://www.wisbank.com/.
By, Ally Bates