The Bank Secrecy Act Makes Growing Hemp A Risky Business

04:33PM Feb 11, 2019
“It’s still unclear whether or not growing hemp falls under the Bank Secrecy Act,” says Curt Covington, executive vice president and chief credit officer at Farmer Mac.
( Alison Fulton )


When President Donald Trump signed the 2018 farm bill, industrial hemp became a commodity crop. Still, the intricacies around growing cannabis and the lack of guidance from federal bank regulators means growing it can put your business at risk.

A Farm Journal survey of 950 farmers shows definite interest in growing the crop most commonly known for marijuana. In fact, 47% of those surveyed said they were interested in growing cannabis. More than 55% said if growing cannabis was 10 times as profitable as growing soybeans, they’d be interested. While 34% of farmers say they have financing options available, bankers caution it’s not that easy.

Under the Bank Secrecy Act, which was put in place to prevent money-laundering, anytime a banker transacts what they believe to be a suspicious activity with a borrower, they are required to complete a suspicious activity report.

“It’s still unclear whether or not growing hemp falls under the Bank Secrecy Act,” says Curt Covington, executive vice president and chief credit officer at Farmer Mac.

Furthermore, hemp is still considered a drug, notes Alan Hoskins, president of American Farm Mortgage & Financial Services. Therefore, lenders are bound by regulations. While Covington says federal regulators are not likely to give much detailed guidance anytime soon, farmers and bankers need to analyze several business complexities.

Growing hemp isn’t legal every- where. Only 41 states allow for industrial hemp to be grown on a commercial scale. Without a change on the federal level, the state laws will continue to be different, says Keith Knudsen, president and CEO of Security Bank. If it’s legal in your state, you must obtain licensing and permits to provide to your banker.

Even where legal, farmers growing hemp face restrictions. Hemp, per the farm bill, can’t contain more than 0.3% of the psychoactive chemical tetrahydrocannabinol (THC), which produces a high. “This isn’t a deal where your lender just grants you a loan and hopes for the best,” Covington cautions. “This requires regular inspection to the facilities to ensure the THC levels are legal, and that this hasn’t overtly or inadvertently gone from a hemp-growing facility to a cannabis-growing facility.”








Farmers should regularly test their crop to ensure proper THC levels and maintain documentation to prove as much, Covington advises, as the consequences of not doing so are drastic. “The authorities will come in and test the THC of that crop, and if they find it to be higher than what it’s supposed to be for hemp, you will have the pleasure of watching your collateral go up in smoke—pun intended,” he says. “They will demand that you destroy the entire crop immediately.”








Be careful with self-financing. A lot of growers are looking to credit cards and cash to self-finance their hemp enterprises, Covington says. But, if you have other enterprises financed at the bank, you could be putting your entire farm at risk. “Your banker will argue the cash you have actually came off the crops they finance because they have a collateral interest in all of your assets, cash, receivables, crop inventory, land, equipment and buildings,” he says.








Understand cannabis laws are constantly changing. “We have to continually watch what’s changing in the regulations,” Knudsen says. “As laws are changed they’ll come out with their new regulations, but that doesn’t happen overnight.”








Farmers should talk to their lender first before diving into this venture, Hoskins says. “Look at what the impact is going to be for your farm,” he says. “When you have revenue, are you going to be able to legally deposit it in the bank? Have a discussion with your lender and your institution’s deposit person.”