New NCUA Guidance: What It Means for Hemp Banking & Loans
On August 19, 2019, the National Credit Union Administration (“NCUA”) released new guidance regarding financial services for the hemp industry. The NCUA is a key federal regulator of credit unions.
The NCUA guidance confirms that credit unions can provide the “customary range of financial services” (including banking and loans) to legally compliant hemp businesses.
With respect to the question of what it means to be legally compliant, the NCUA guidance notes that operators may already be compliant with aspects of federal law to the extent that they can document that they are acting under existing 2014 Farm Bill state pilot program regulations. It adds that once regulations are promulgated by the US Department of Agriculture to implement the 2018 Farm Bill, operators may act under those rules as well.
Notably, Farm Bill compliance is a necessary but not sufficient condition to be deemed legally compliant. The guidance observes that hemp businesses—including downstream businesses such as manufacturers, distributors, shippers, and retailers—remain subject to additional federal and state laws governing the production, distribution, sale, and use of hemp and hemp-derived products. One such law specifically noted: the Federal Food, Drug, and Cosmetic Act enforced by the FDA against producers of CBD products in recent months.
The NCUA’s guidance is clearly intended to make more banking services available to the hemp industry.
But it puts the onus on each credit union to understand applicable federal and state-level laws and regulations, and then make a determination of what it means to be “lawfully” operating as a hemp business. Given the complexity of rules in this area, in the near-term operators are likely to see a range of responses from credit unions evaluating risk of the same business model.
The NCUA’s guidance is a step towards increased access to capital and critical financial services for the hemp industry. But this is an invitation for credit unions to service businesses that a given credit union concludes are legally compliant, and not a mandate requiring all credit unions to offer such services.
As a result, the financial services available to the hemp industry from credit unions will likely continue to exist across a broad spectrum. And credit unions will likely revise those determinations over the coming months and years as the Department of Agriculture’s rules, state laws and rules, and revised FDA guidance continue to evolve.
What is clear is that compliance with applicable rules, and the ability to credibly document that compliance, will be crucial for industry participants seeking to access these financial services.