In 2018, the US Farm Bill laid out a clear distinction between marijuana and hemp in terms of legality. Although both derive from the same source, the low THC levels in hemp allowed its declassification as a controlled substance.
This meant the production of hemp-derived CBD products was on the upswing as producers ramped up production. This increase in growth saw farmers wanting a switch from cash-only transactions to banking transactions. Hemp producers, however, are running into issues.
Several coastal credit unions and local banks have opened up their banking to hemp businesses, but nationally pickings are slim. Currently, only one federally recognized US bank, Chase, is providing business loans to hemp producers.
One sticking point on increasing federal banking within the hemp industry is how often legislation is changing. Since the Farm Bill was introduced in 2018, both an interim and final ruling were added, giving federal banks a reason to second guess whether producers are a safe bet. So far, each new directive has benefitted the hemp industry, but that can’t always be a guarantee.
Regulatory changes seem to be defined by government administrations and shifts in Congressional strongholds. Essentially, he with the most votes wins. As these definitions for regulations change, so does the inclination to support the hemp grower looking for that first small business loan. Banks fear further changes could heighten the risks involved with repayments.
A conflict between state and federal
Conflicting state laws and federal laws are adding to the apprehension. Federal rulings tend to trump local and state mandates, but state laws can hold more weight regionally. So additional risks are incurred when producers transport products over state lines.
Often banks seek out new business ventures and offer fair interest rates as an enticement. And with the US industrialized hemp market valued at just under $6 billion and projected to reach nearly $28 billion by 2028, it’s not unrealistic to think banks would benefit from an industry expected to see more than quadruple growth.
The venture itself, along with the term ‘projected,’ are still concerns for many banks. With Congress weighted in one direction, the banking industry can view the risk as minimal. Regulations will swing in favor of hemp producers, so the projections become more realistic. But a swing in the opposite direction, and the uncertainty of when that may happen, further amplify any doubts.
Couple that uncertainty with hemp still being viewed, however incorrectly, as a controlled substance, and the worry intensifies. Distinctions between hemp and marijuana are still difficult for many to make, so the industry as a whole is then high-risk in the eyes of banking leaders.
Hemp producers solely relying on e-commerce to generate profits are running into further issues with regard to banking. The high-risk status means that payment processing fees are higher for the hemp-derived CBD industry. Businesses unable to support those processing fees are forced to close, again increasing the risk.
If projections hold steady, a change in perception may not be far off. Banks may begin seeing the growth as positive for hemp business, the jobs market, and communities directly impacted. Until then, many producers are still relying on savings, private financing, personal loans, and a tremendous amount of patience.
