WISCONSIN DELLS — With the passage of the 2018 Farm Bill almost a year ago now, hemp became legal to grow and process in all 50 states as it was removed from the Controlled Substances Act. Wisconsin was already one step ahead, enacting Act 100 in 2017 to allow for a pilot hemp program for research purposes within the state, to be administered by the Wisconsin Department of Agriculture, Trade and Consumer Protection.
While hemp legislation and regulation continues to move forward, better defining hemp as a commodity for growers, processors and consumers, when it comes to banking for hemp customers, these pieces of legislation fall short in identifying best practices. And when it comes to the Federal Deposit Insurance Corporation, no guidance has been given to agricultural bankers who may have customers ready to dabble in the hemp industry.
Scott Birrenkott, assistant director of legal at Wisconsin Bankers Association, said he doesn’t think the FDIC will offer any guidance to bankers in the immediate future, but instead will wait until bankers in the industry have figured things out before making recommendations or supporting regulations.
“With this topic, there is a lot ongoing and we’re learning,” he said. “You may have a couple customers but you don’t think you’re an expert. But you are — and you might be surprised at how much you know about hemp.”
He encouraged ag bankers gathered for his session at the Wisconsin Bankers Association’s LEAD360 Conference on Nov. 21 to continue to get to know their hemp customers by looking at photos of hemp, reading about its uses and studying how the crop is grown to get the best understanding of their customer, their business and what to expect of them.
Each bank should develop its own policies to conform with their general Bank Secrecy Act policies, which essentially boil down to knowing their customer and fully understanding their business. A bank policy will outline what the banker needs to know about the business, asking questions like do they need to know GPS coordinates of the hemp fields? Or do they need to know the grower is licensed?
Birrenkott made a comparison to a customer who may own a liquor store or gas station; the banker should know if the business is licensed, that they follow regulations and requirements, etc. The answer as to how much the banker should know about the customer and the business will vary from institution to institution, but a policy should lay out what is appropriate at minimum as the FDIC has not yet provided any official statements for minimum procedure.
When developing a policy, he recommended bankers take a look at a form designed by FIPCO to help hemp bankers develop policy and procedures around hemp banking, giving the banker a starting point on questions to ask their customers. The document includes a hemp questionnaire and a certificate, which serves as a contract that they sign.
The questionnaire should address whether the customer is a grower or processor of hemp, if they’ve met DATCP requirements, what they plan to use the crop or sell it for, whether they are selling the crop in Wisconsin or crossing state lines and where the seed for the crop comes from, among other questions. There is currently no law stating that the banker needs to know if they are selling the crop to someone who is conducting business legally, but it is still good for the banker to obtain as much information as possible about their customer and their business.
The certification flows from the questionnaire, asking several follow up questions before requiring the customer check a few boxes and sign the document. Bankers may want to do an annual review of this document as sometimes things can change within a business or for the customer.
The FIPCO hemp form is available to FIPCO customers, Birrenkott said, but he can also share it with non-FIPCO customers if they reach out to him.
While Birrenkott hasn’t heard of any Wisconsin banks lending money to hemp customers yet, they have been warming up to opening accounts for hemp customers so they can access money for their business and take advantage of other financial services offered by the bank.
“Loans will still be tricky because there is a lot to go through,” he said. “Opening an account is a lot easier at this point.”
From the phone calls Birrenkott has been getting, he sees a shift from bankers wondering if they can provide services to a hemp customer to bankers offering those services and now wondering what’s next. He even recently had a phone call from a banker who asked how their bank can market services available to hemp customers now that they are comfortable enough in doing it.
Looking into the future, Birrenkott sees legislation continue to progress and recommended bankers stay up to date on these movements. As DATCP tweaks their rules, which include plans to submit a proposal to the U.S. Department of Agriculture to continue administering the hemp program under state operation as opposed to federal, regulations for hemp customers will continue to be updated.
“What’s happening day-to-day is important,” he said.
The banking industry as a whole should be getting more comfortable with hemp customers, breaking away from the stigma and recognizing hemp as a commodity. The business is legal and legitimate, and bankers should know as much as they can about the business to best serve their customer.
However, as hemp continues to grow in popularity, Birrenkott also sees issues with interstate commerce rising to the top as bankers consider whether or not to finance or provide services to someone who is transporting the crop across state lines, where regulations and laws could be a bit different.
“Interstate issues will become the big hang up,” he said.
It may be wise for bankers to learn more about jurisdictional issues if they have a hemp customer. But as the industry continues to move forward and bankers become more familiar, Birrenkott is sure there will be rules and procedures put in place to address these potential interstate issues.
Finally, Birrenkott predicted that bankers will start to see people get creative within their industry, especially with the popularity of CBD from hemp. Without rules or regulation as given from the FDIC or another institution, bankers are to presume a product derived from legally produced hemp is also a legal product, and there are currently no rules about legally selling CBD oil.
Bankers will need to do a bit of creative thinking themselves as there are no regulations telling them exactly how to navigate these waters of the emerging hemp business.
“Just start thinking about it and figuring it out if you want to help people in your community,” he said.