Carolina hemp companies expecting an early Christmas gift from the 2018 farm bill are in for a surprise, or at least a delay.

For months, hemp and cannabidiol (CBD) companies have assumed this year’s federal farm bill would alleviate banking woes that have cost them time and money and ultimately increased the prices consumers pay.

Numerous companies have reported to Carolina Cannabis News that even though they were upfront about what their company grows and/or and sells before establishing accounts that their credit card processing capabilities and even their business checking accounts have been closed, sometimes with no notice.

[Image: President Donald J. Trump signing the 2018 farm bill into law. Photo courtesy C-SPAN.]

“It’s been a mess,” says Melissa Clark, the owner of Hemp Magik in Woodfin, N.C., “Our payment processor was cancelled when they figured out we sold CBD. Then I worked with a specialty CBD company for a couple weeks; they told me they didn’t have a 10 percent hold, but they did. I called them, livid. If you do a 10 percent hold, okay, but tell me. It’s the 10 percent hold that will really get a small company.”

“Everybody wonders why CBD costs so much, but it’s because there is a new expense around every corner,” she says.

Clark explained that hemp and CBD companies are considered “high risk” — the same category as porn and gambling companies — due to regulatory uncertainty which allows banks to charge additional fees that other businesses don’t incur.

Earlier this year she went an entire month without being able to sell her hemp and CBD products online. Clark says, for the most part, her customers understand “these are things out of our control. I ask people to be patient and work with us in the way that we’re able to take payment.”

What is and isn’t in the farm bill

The hemp-related portion of the farm bill, which you can read here, does not include the words “bank” or “banking.” However, it does make hemp federally legal by removing it from the Controlled Substances Act. It also makes federal grant funding available for research, lists hemp as an agricultural commodity, adds hemp to the Federal Crop Insurance Act, confirms the legality of interstate commerce and maintains that regulatory authority rests with state governments.

The bill also shifts federal oversight from the U.S. Drug Enforcement Administration to the U.S. Department of Agriculture. This means hemp crops can be certified organic, farmers can seek water rights and financing opportunities will open up, according to the American Agriculturalist. But that last part may be overly optimistic.

There is still legal gray area when it comes to CBD, and that is what’s holding up banking changes.

The Farm Bill ensures that any cannabinoid—a set of chemical compounds found in the cannabis plant—that is derived from hemp will be legal, if and only if that hemp is produced in a manner consistent with the Farm Bill, associated federal regulations, association state regulations, and by a licensed grower. All other cannabinoids, produced in any other setting, remain a Schedule I substance under federal law and are thus illegal. (The one exception is pharmaceutical-grade CBD products that have been approved by FDA, which currently includes one drug: GW Pharmaceutical’s Epidiolex.) — via a blog post by John Hudak, Deputy Director of Center for Effective Public Management and Senior Fellow of Governance Studies at the Brookings Institution, a public policy think tank based in Washington, D.C. [Learn more about the Brookings Institution via]

That gray area is creating headaches for Carolina hemp and CBD companies that continue to face account shutdowns with little or no notice from their banks, even though, as of this afternoon, the farm bill became law with the president’s signature.

When asked if the farm bill will make a difference for hemp companies when it comes to banking Nathan Batts, Sr. Vice President and counsel for the N.C. Bankers Association, says, “It is a complicated issue. We’re still very much in the early phase of trying to understand the nuances. What I don’t see at this point is a clarity regarding the end product.”

“As to the issues of hemp production and its use, it’s part of an ongoing process,” says Batts. “(The farm bill) will not have some immediate panacea effect.”

2018 farm bill provisions:

  • Removes hemp from the federal Controlled Substances Act
  • Makes federal grant funding available for research
  • Lists hemp as an agricultural commodity
  • Adds hemp to the Federal Crop Insurance Act
  • Confirms the legality of interstate commerce
  • Maintains regulatory authority rests with state governments
  • Shifts federal oversight from the DEA to the USDA
  • Enables farmers to certify their crops as organic and to seek water rights

The U.S. Food and Drug Administration has issued a press release regarding the farm bill. It states, in part, “Just as important for the FDA and our commitment to protect and promote the public health is what the law didn’t change: Congress explicitly preserved the agency’s current authority to regulate products containing cannabis or cannabis-derived compounds under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and section 351 of the Public Health Service Act.”

Read the press release in its entirety here.

He says it will take time — “months,” at a minimum — for the banking industry and various governmental agencies to fully digest the farm bill and issue guidance to banks. Batts says banks will also look to legislators to clarify the law in coming months.

Dr. Thomas Melton, chair of the N.C. Industrial Hemp Commission agrees. “This will have to come from the General Assembly once the USDA surveys state programs, sets rules, makes requests for state plans and then approves the state’s plan.” Though, he adds the caveat, ” … it is premature and speculative to answer … “

According to Tom Angell, in an article for Forbes magazine, banks can already service cannabis company accounts if they want to:

In 2014, under the Obama administration, FinCEN issued guidance to banks about how to serve the marijuana industry without running afoul of federal regulators. The memo, which requires financial services providers to regularly file reports on customers with cannabis accounts, was meant to provide clarity and assurances to banks. But many have remained reluctant to work with cannabis businesses because ongoing federal cannabis prohibition could trigger money laundering laws and other risks.

Those suspicious activity reports, or SARs, are pointed to by the banking industry as an extra expense due to the amount of time employees must dedicate to the task, and that only increases their hesitation to service the cannabis industry.

According to the Banking Journal:

Meanwhile, lack of access to bank accounts creates two critical problems for the states that continue to be a serious problem. First, by operating on an all-cash basis, marijuana businesses become attractive targets for armed robbers, creating a risk to public safety. Second, and equally important, states dislike and, in some cases ban, the use of large cash sums to pay state taxes and licensing fees. Operating strictly in cash also means that typical bank records that document transactions for audit purposes no longer exist, making it simpler to divert funds to improper use.

[The story continues below.]

[Cannabis companies report having to manage their businesses on a cash-only basis, and even paying their taxes with stacks of $20 bills. Image credit kreinick via iStock.]

It’ll take an act of Congress

There is currently a bill in the U.S. Congress — the (Safe and Fair Enforcement) SAFE Banking Act — that could change everything, though it’s seen more media coverage than action on the Senate floor.

The SAFE Banking Act was introduced in May 2017 by Sen. Jeff Merkley (D-Ore.) and currently has 20 sponsors. If made law, the bill would prohibit federal banking regulators from “prohibiting or otherwise discouraging a depository institution from offering financial services” or “taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased or sold to such a business.”

In June 2017, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the bill, but nothing has happened with it since then.

[Video via YouTube: U.S. Senate Majority Leader Mitch McConnell (R-KY) introducing the bipartisan, Hemp Farming Act of 2018, which legalized and clearly define hemp as an agricultural commodity and removed it from the list of controlled substances. April 2018.]

Then there’s Sen. Elizabeth Warren (D-Mass.) and Sen. Corey Gardner’s (R-Colo.) STATES Act, introduced in June 2018. Should that bill become law, it would effectively protect companies from federal authorities if they comply with state cannabis law.

That bill is currently in the U.S. Senate Committee on the Judiciary, and it was dealt a blow this week when Gardner attempted to add it as an amendment to a criminal justice reform bill. According to American Banker:

Gardner attempted to introduce that bill as an amendment to the pending criminal justice reform legislation then being considered by the Senate, but the amendment failed to advance due to objections by Sen. Chuck Grassley, R-Iowa, who chairs the Senate Judiciary Committee. The broader criminal justice bill passed the Senate overwhelmingly on Tuesday.

Meanwhile, a banking trade organization representing credit unions in the Northeast sent a letter to Warren stating, in part, “The Association is overwhelmingly supportive of your bill and there is much about this narrowly designed proposal that is laudable. First, we firmly believe that the bill strikes a careful balance between federal and state governance … “

A report from the Financial Crimes Enforcement Network (FinCEN), with data complied through March 31, 2017, indicates only 368 banks in the United States were offering banking services to legal cannabis companies at that time. It also states why a bank might “terminate its relationship” with a cannabis company: if a company “raises one or more of the red flags as defined in the Cole Memo; is not fully compliant with the appropriate state’s regulations; or the financial institution has decided not to have marijuana related customers for business reasons.”

In its 2018 report, FinCen, part of the U.S. Treasury Department, stated 411 banks now service the cannabis industry.

In the U.S. House of Representatives, Rep. Maxine Waters (D-Calif.) is expected to become the House Financial Services Committee chairperson in January. As reported by The Wall Street Journal last month, she said “it’s inevitable we are going to have to talk about how the federal prohibition on marijuana makes it hard for banks to serve state-licensed cannabis businesses.”

Little consolation for hemp and CBD companies

The owner of Charlotte-based Prime Sunshine CBD, Ellen Tacher, says Aquesta Bank, a community bank headquartered in Cornelius, N.C., will close her company’s bank account on Jan. 31, 2019. “The bank pursued my business,” says Tacher. “I was at BB&T and then Aquesta pursed my business. I went to an event, met their CEO they were well-aware of what I sold and they welcomed me with welcome arms.” She says her relationship with the bank was fine until a wire transfer to the bank of a supplier was rejected. When the bank couldn’t explain why, Tacher, a former investigative journalist, began seeking answers herself. She says she called the CEO of the bank that purportedly rejected the transfer, which is located in Kentucky where there is also a hemp pilot program. Tacher says she was told the Kentucky bank did not reject the transfer, that it was a third-party processor that halted the transaction. In an email forwarded to Carolina Cannabis News by Tacher, a compliance officer for Aquesta, Carrie Hewitt, wrote, “In May of this year, I contacted you to respectfully request that you close the checking account for Prime Sunshine within 60 days as it is the practice of the bank to not service accounts for CBD /marijuana related businesses.  It has been brought to my attention that this account has not yet been closed. Please make arrangements to close the account by January 31, 2019. If the account has not been closed by you at this time, we will close the account on your behalf and mail an Official Check for the balance of the account to the address on file on February 1, 2019.” This doesn’t sit well with Blake Butler, executive director of the N.C. Industrial Hemp Association. “Banks can no longer make the argument that they can’t provide financing for people who are in the hemp business because they’re in a business that is not federally legal. The gray areas in the laws have allowed banks, as well as insurance companies and others, to say they’re not willing to do business until hemp is a federal commodity. And that’s what the farm bill does — it has made hemp an agricultural commodity.” “I’ve got payroll connected to the bank,” says Tacher, “all of my vendors, my lease payments for my office – everything is connected to that account. How can it be the practice of the bank not to have these accounts if they pursued my business and the CEO knows I have a CBD company?” Jim Engel, CEO of Aquesta, stated via email, “I am sorry to say that it appears you have been misinformed.  We have not ‘pursued’ business with CBD companies.” He also wrote, “I have not read anything at all regarding the legislation to which you referred to,” before pointing to larger banks for help. “Many of those banks have staffs of hundreds of attorneys who review and monitor regulatory matters. As a community bank, we have no attorneys on staff and must await (sic) for official regulatory changes to be announced. As far as I know, there have been no regulatory changes relating to this general topic.” In a follow up email, Engle was asked if he is denying meeting Tacher and if he is suggesting her statements are untrue. He did not respond. For what it’s worth, Carolina Cannabis News sent Engle a link to the hemp-related portions of the farm bill in our initial email. BB&T did not respond to a request for comment.

Charlotte company hopes to help

CannaTrax hopes to help Carolina hemp and CBD companies — and cannabis companies nationwide — break through the banking stalemate. The software company, owned by Sean and Kiah Tolliver, plans to begin beta testing software in January that not only tracks hemp and CBD products from seed to sale but also serves as a point of sale (POS) system and credit card processing platform. “There is no supply-chain solution for cannabis or hemp for retail marketers,” says Sean Tolliver, “With our inventory tracking, it will allow them and the people in their franchise network to be able to see inventory across the entire supply train. So, for example, with CannaTrax, store owners will know how many CBD vape pens are in their stores in Raleigh and in Charlotte at any given time.” He says it was a visit to a dispensary in Las Vegas that sparked the idea for the software. “You know how when you go into a regular store and the checkout process is typically seamless? Our check out process wasn’t the most seamless. It seemed like the software they were using was being repurposed from another industry; even the workers hated the software. A light went off in both of our heads: This is a problem we can solve.” “We have a relationship with a high-risk credit card processor that has a lot of clout in the banking industry,” he says. “They can process accounts for dispensaries and they’re willing to provide a means for them to process transactions. It’s not the ideal solution, by any means,” he admits, adding that they hope to limit credit card processing fees to 5-10 percent, saying, ” … many out there are charging much more.” Armaney Richardson-Peterson, owner of The Hemp Source, with several locations in North Carolina and Maryland, says, “We’re cash-only just because it’s considered a high-risk business and the rates are extremely high. I don’t want to add that to our customer’s costs.” She says she shopped around for a POS system for medical cannabis companies. “That software has a lot of things we don’t need,” she says. She believes software like CannaTrax can offer peace of mind for her customers, too. “Customers, you know, they have so many companies that say they’re growing hemp and making their own CBD products when they aren’t. So, it’s good to have that tracking to show that its come from your crop to your shelf.” “Hemp is going to be bigger than cannabis ever will be,” predicts Sean Tolliver. “And the hemp industry experiences the exact same struggles and no one is paying attention to their needs.” “A lot of these folks, especially here in the Carolinas, don’t have retail experience. They’re farmers,” he says. “They need help. They need guidance. They need someone to stand behind them and help them earn bigger margins.”
BY Rhiannon Fionn

BY Rhiannon Fionn

Editor & Publisher

Rhiannon Fionn is an award-winning journalist based in Charlotte, N.C.

[Header image by Tero Vesalainen via iStock.]