The hemp industry celebrated this week when it was reported that credit unions could provide financial services to hemp-related businesses. A closer look shows that the National Credit Union Association warned credit unions against opening accounts for CBD companies.
The NCUA encouraged “credit unions to thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses.” Credit unions are small banks that generally lack the resources and expertise to handle industries that are complex and require heavy due diligence. Under the NCAU’s guidance, Credit unions must perform due diligence and analyze whether the activities of hemp or CBD business are lawful under federal, state and municipal laws.
So, what is a lawfully operated hemp-related business?
An intrastate hemp business that complies with the State’s CBD laws, and industrial hemp program under the 2014 Farm Bill until the USDA implements the 2018 Farm Bill.
Issue: Hemp and CBD are still illegal in some states and cities.
A company, including manufacturers, distributors, shippers, and retailers of hemp derived products, that are or will be subject to, and complies with, state or FDA regulations related to the production, sale and use.
Issue: This analysis becomes complicated quickly for any company that is engaged in interstate commerce. For example, New York only permits the in-state sale of CBD products that are manufactured by state-licensed processors. Thus, a credit union would need to analyze a company’s financials to ensure that CBD revenues generated in New York were only from CBD products lawfully manufactured in the state. State guidance to date suggests that it is difficult if not impossible to sell CBD generally on an interstate basis.
A hemp or CBD company that passes due diligence, and its business activity is legal and allowed under federal, state and local laws.
Issue: Credit unions will need to understand how a business generates revenue and whether it complies with state law. This level of analysis would make it virtually impossible for a credit union, given its limited resources, to safely and properly serve CBD companies.
The NCUA’s warning raises more concerns about the role that the USDA and FDA will have in the continued growth of the CBD industry. Based on the statements made in this guidance, we would expect that national banks will take a closer look at CBD companies and possibly stop all services until the FDA adopts regulations.
A more likely ending may be that CBD begins to look a lot more like the cannabis industry.