Op-Ed

A regulatory step forward in securing financial services for the legal hemp industry

Hemp or pot: What’s the difference?

The hemp industry is no stranger to Kentucky. How well do you know your cannabis?
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The hemp industry is no stranger to Kentucky. How well do you know your cannabis?

The bipartisan Farm Bill that President Trump signed into law in late 2018 included a policy change that is a game changer for not only the Commonwealth but also many other places across rural America: the legalization of hemp as an agricultural crop.

However, the U.S. Department of Agriculture is in the process of developing and implementing new rules and guidelines governing the production of hemp. Until the new USDA regulations are in place, hemp growers are operating under the 2014 Farm Bill’s industrial hemp pilot program. But even under the 2014 program, certain hemp-related businesses can now operate legally under certain conditions. Confusion about this has led to some legally operating hemp-related businesses not having access to customary financial services products that entrepreneurs count on to run successful businesses.

That’s why the independent regulatory agency I lead, the National Credit Union Administration, has issued new interim guidelines making it clear that federally insured credit unions can provide financial services to hemp growers and related businesses operating lawfully under the 2014 pilot program. This is a positive step that will help bridge the gap until the full regulatory framework is in place.

The 2018 Farm Bill removed hemp’s classification as a controlled substance under federal law. Under the 2018 law, hemp is an agricultural commodity, though it will remain subject to state and federal oversight, similar to tobacco.

Many rural communities welcomed the change to hemp’s legal status, since it will ultimately open up new opportunities for growing and selling an alternative cash crop. A thriving hemp industry is a shot in the arm for rural America.

Being unable to perform basic business transactions, like securing loans to purchase equipment and agricultural inputs through the legitimate financial system, makes it more difficult for these businesses to grow and thrive. Moreover, it’s potentially dangerous as some of these businesses may be forced to rely on cash transactions, which could make them more vulnerable.

Financial services products are like oxygen: Industries and entrepreneurs need them to survive. Entrepreneurship is hard enough without creating obstacles that lock businesses out of the financial system.

Recognizing the difficulties that the regulatory limbo posed to the industry, Senate Majority Leader Mitch McConnell, who spearheaded the hemp-legalization initiative in the 2018 Farm Bill, contacted me and let me know how critical it was to assist the hemp industry to get access to capital and other financial products now.

Recently, my agency issued interim guidance to all federally insured credit unions that makes it clear they may offer the customary range of financial services for business accounts, including lending, to legal hemp-related businesses. In doing so, we sought to determine what form the constructive framework could take to assist legal hemp businesses that need access to capital and financial products.

This common-sense step will help increase access to capital for legal hemp growers and entrepreneurs in the short term. However, the NCUA’s interim guidance is only a first step.

For the future, we look forward to the USDA’s forthcoming regulatory framework for hemp production. The department has indicated these rules will be in place in time for the 2020 planting season. After the USDA releases its regulatory framework, you can count on the NCUA to quickly issue guidance for credit unions that incorporates these new rules and any other noteworthy developments in this exciting new industry.

These guidelines are also in keeping with the historical mission of credit unions. The NCUA commemorated the 85th anniversary of the signing of the Federal Credit Union Act earlier this summer. That national system of cooperative credit offered through locally based, member-owned financial institutions has a proud history of providing affordable credit and savings services to the agricultural sector. Supplying such financial services to the legal hemp industry will be an important new chapter in credit unions’ history.

The decision to legalize hemp production represents a significant step forward that will make a real difference in rural communities. I will continue to work with my regulatory partners to create a framework so that this promising new industry can thrive. And the interim guidelines for the nation’s providers of cooperative credit are a good place to start.

Rodney E. Hood is chairman of the National Credit Union Administration.

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