What You Need to Know About CBD, Cannabis, and Banking

What You Need to Know About CBD, Cannabis, and Banking

One drama that has largely played out behind the scenes of the emerging legal cannabis industry is the relationship between CBD and banking. While it may seem like industrial hemp has experienced almost unfettered growth, the truth is that a lack of proper--or, at times, any--access to financial business products has created a challenging environment for cannabis entrepreneurs. There may, however, be hope on the horizon.

Hemp Prohibition

Industrial hemp lacks the primary psychoactive component, THC, that makes marijuana popular. Industrial hemp does make an excellent source for oil that’s usable as bio-fuel, fibers for paper and fabric, and CBD to promote wellness. Unfortunately, powerful detractors embarked on a decades-long smear campaign to associate it with its illicit relative and led to the eventual scheduling of hemp along with marijuana as a controlled substance. Effectively banned at the federal level, hemp’s illegal status impacted CBD and banking availability.

Why Banks Abandoned Hemp Businesses

As there was no distinction legally between hemp and marijuana, in the eyes of the law, all hemp was marijuana. That meant that formerly legal growers, manufacturers, and distributors became the equivalent of criminal business enterprises overnight. Banks are required to report suspicious activity. If they believe large sums of money are coming from illegal enterprises, they are expected to notify the authorities. Due to anti-money laundering laws, large cash transactions are also reported. While the intent of these laws is to inhibit actual criminals, during hemp’s prohibition, that included those involved with industrial hemp, making banking and depositing CBD profits legally risky.

Because any profits would be proceeds from selling illicit substances, accounts were subject to seizure as they were with any other controlled substance. These could include not just a company’s business accounts, but the personal accounts of its employees, owners, and known relations where the money was suspected of coming from the business of hemp.

In some cases, no trial was needed. Civil asset forfeiture laws are a problem beyond CBD and banking but were used frequently by authorities to seize money and assets on the mere suspicion of a crime taking place.

The laws also offered plenty of risk to banking entities and employees. Under some circumstances, failure to report suspicious activity could result in large fines for the bank and potential criminal liability for the personnel involved. Loans made against crops, a common source of agricultural collateral in lending, were impossible, as the crops were subject to seizure. In the end, banking had no choice but to shun hemp business, as intended under the law.

The Results Of Hemp Prohibition

Deprived of legal status and basic banking, CBD businesses ceased operations. Refusing to would have meant becoming true criminal entities. The damage would last for decades.

A group of businessmen and women meeting at a table

Hemp’s Resurgence

The relationship hemp has with marijuana may have brought it down, but the acceptance of medical marijuana also brought it back to life. While hemp proponents had bemoaned it’s public shame, as interest increased in MMJ, more and more people who were looking for relief without the high caused by THC began to consider CBD from industrial hemp. Bowing to pressure, the 2014 Farm Bill eased hemp restrictions. With the 2018 Farm Bill, hemp was explicitly legalized by the federal government, establishing a measurable, recognized difference between hemp and marijuana, and opening the doors to its legal use across industries, but CBD and banking weren’t quite ready to work together again yet.

Banking During The Return To Legality

While the 2014 Farm Bill eased restrictions on industrial hemp, it left plenty of doubt about cannabis’s future. Bankers are responsible to owners and shareholders for their financial institution's operation, with federal regulations and potential jail time waiting for any incautious misstep. They, by nature, take a conservative approach to money, investments, and their bank’s financial health. For a time, that meant that, despite their nominally legal status, banking and CBD companies still didn’t do business.

Instead, CBD companies often were forced to operate as a cash business. Without access to financial and banking services, CBD companies were forced to turn to traditional safes or other cash methods to protect deposits. Those that could get an agreement with a payment processor to allow their customers to use credit cards were charged exorbitant fees due to the “risk”. This endangered their employees by making them a potential target for thieves. In addition, many states no longer allow cash for tax payments, forcing owners to find creative ways to perform their civic obligations as merchants.

Farm Bill 2018 And Legalization

The Farm Bill of 2018 cleared up much of the fog surrounding industrial hemp’s status, but that doesn’t mean that CBD and banking have anywhere close to a normal relationship yet. The new legislation is months old, and while it set the regulatory framework for industrial hemp, time is needed for additional guidance that will satisfy some banking entities.

How should banks determine whether they’re loaning against industrial hemp or marijuana crops? How will these crops be insured, and does that protect the bank in case of seizures should the THC level stray too high? How will states regulate hemp within their own boundaries?

What The Future Will Hold

While the status of banking and CBD may be uncertain, there are positive signs. More and more banks and investors are seeing the potential of hemp and opening their arms to this “new” cash crop. Consumers are showing extraordinary interest, driving sales that only seem to climb. The demand for cannabis products is only increasing, and bankers are very good at following the money. As profits continue to rise, CBD and banking seem headed to a new, healthier chapter in their relationship.

One thing you can bank on is that at CBD Choice, we’ll do everything in our power to make sure you have access to potent, effective CBD products. Order yours online today.

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