Looking to provide a boost to credit unions interested in adding hemp-related businesses as customers, the National Credit Union Administration issued a new set of FAQs focused on compliantly serving those businesses.
The agency said hemp-related businesses have been affected by the pandemic, as other businesses have, and reminded credit unions that the information and FAQs provide no new expectations or requirements for credit unions.
“Lawful hemp businesses provide exciting new opportunities for rural communities, and credit unions should carefully consider whether they can safely and properly serve lawfully operating hemp-related businesses within their fields of membership,” NCUA said. “To that end, and as described in this letter, credit unions must be aware of the federal, state, and Native American tribal laws and regulations that apply to any hemp-related businesses they serve, as well as the complexities and risks involved. The NCUA encourages credit unions that are serving, or considering serving, hemp-related businesses to review all available information related to this evolving industry.”
The letter from NCUA to credit unions says new rules established after passage of the 2018 Farm Bill require provisions for the Department of Agriculture (USDA) to approve plans for the domestic production of hemp, along with minimum requirements all hemp producers must meet. Those include:
- Licensing requirements;
- Maintaining information on the land on which hemp is produced;
- Procedures for testing delta-9 tetrahydrocannabinol (THC) concentration levels;
- Procedures for disposing of non-compliant plants;
- Compliance provisions, and
- Procedures for how to handle violations of the production requirements.
“It is important that credit unions stay current with the federal, state and Native American tribal laws and regulations that apply to any hemp-related businesses they serve,” NCUA said. “If you have legal questions about a hemp-related business, we encourage you to consult qualified counsel and the appropriate federal and state authorities.”
It then began with FAQs, beginning with information on USDA’s interim final rule on hemp production, which went into effect Oct. 31, 2019. USDA stated at the time that it would publish a final rule within two years.
The interim rule, though, does not mean hemp can be produced legally in every state.
“The 2018 Farm Bill did not pre-empt state or tribal laws regarding the production of hemp that are more stringent than federal law,” NCUA stated. “Further, hemp may be produced only under the 2018 Farm Bill with a valid USDA-issued license or under a USDA-approved state or tribal plan.”
Credit unions can find information about state or Native American tribe production plans submitted to USDA on the USDA website, NCUA said, and if the production plan has not been approved, NCUA said hemp producers without a license had two options to receive authorization.
“Until Nov. 1, 2020, states may allow hemp production under the research and development initiatives permitted by the 2014 Farm Bill,” NCUA stated. “Hemp producers in states and tribal territories that do not prohibit hemp and that do not intend to develop and submit a plan to the USDA can also apply for a hemp production license under the USDA’s hemp production program.”
NCUA said the interim final rule on covers hemp production, and not other hemp-related businesses such as manufacturing, processing, distribution, shipping and retail.
“While states do impose requirements on certain other types of hemp-related businesses, absent a uniform system, credit unions must be aware of the rules that apply in the individual states or tribal territories in which they serve other hemp-related businesses,” NCUA stated.
NCUA said it would not be conducting examinations over the service of hemp-related businesses, but it would collect data, which is intended “only to help the agency better understand how it can assist credit unions serving hemp-related businesses.” NCUA does not prohibit credit unions from servicing hemp-related businesses.
“Hemp provides new opportunities for communities with an economic base involving agriculture. The NCUA encourages credit unions to thoughtfully consider whether they are able to safely and properly serve hemp-related businesses,” NCUA stated.
Lending to a lawfully operating hemp-related business is permissible, but NCUA said any such lending must be done in accordance with all applicable federal and state laws and regulations for lending.
“Credit unions must also ensure such lending is conducted safely and soundly, consistent with sound commercial lending practices. This includes appropriate underwriting standards that consider the borrower’s management ability and experience with this line of business, the financial condition of the borrower, and the borrower’s ability to meet all obligations and service the debt,” NCUA said.
The regulator said credit union boards not only needed to be aware of laws and regulations when deciding whether to serve hemp-related businesses, but they must ensure the credit union has the necessary expertise and resources to conduct business safely, soundly and compliantly.
Credit unions are able to decline serving hemp-related businesses, although NCUA said it encouraged the industry to “thoughtfully consider” whether it could serve them.
If a credit union decided to serve a hemp-related business, the regulator reminded credit unions that the Financial Crimes Enforcement Network (FinCEN) has issued guidance, along with prudential regulators, on serving hemp-related businesses, and confirmed that FinCEN will issue additional guidance after reviewing the interim final rule.
“As with any account, credit unions need to maintain appropriate due diligence procedures for hemp-related accounts,” NCUA stated. “The needed level of due diligence is a business decision credit unions must make individually and can vary depending on the product. For example, the level of due diligence needed for a large business loan would likely be higher than what is needed for a deposit received from a hemp-related business.”
As part of a credit union’s overall Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) compliance program, NCUA said it expects each credit union to employ “sufficient customer due diligence procedures” to ensure that credit union member businesses producing or selling hemp-related products are compliant with applicable laws and regulations.
“Credit unions should verify that hemp growers possess a valid state or USDA license to grow hemp. However, credit unions are not expected to serve as the enforcement authority tasked with policing the hemp industry for illegal activity,” NCUA stated.
If the credit union suspects illicit or unusual activities, it is expected to comply with BSA/AML requirements to file a Suspicious Activity Report (SAR). However, credit unions do not need to file marijuana related SARs on legally operating hemp businesses, provided the activity is not unusual for that business.
“Provided the credit union reasonably believes they are operating lawfully and the activity is not unusual for that business, marijuana-related SARs are not required to be filed for the activity associated with a hemp-related business,” NCUA stated. “Credit unions must remain alert to any indication an account owner is engaging in illicit or unusual activities and should follow current FinCEN guidance for filing regular SARs when they suspect the business is engaging in illicit, suspicious or unusual activity.”