The heads of five federal financial regulatory agencies have replied to a letter from Sen. Michael Bennet (D-CO) that requested clarification on banking services hemp businesses.
The responses, which Bennet’s office provided exclusively to Marijuana Moment, each recognize that hemp was legalized through the 2018 Farm Bill—meaning the rules governing how financial institutions interact with these businesses have changed.
The chair of one body clarified that federal reporting guidelines in place for institutions that work with marijuana businesses no longer apply to hemp companies and said she has “personally discussed the changes during banker outreach meetings both in Washington, D.C. and across the country.”
But the five letters—from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Farm Credit Administration (FCA) and National Credit Union Administration (NCUA)—varied with regard to what the agencies said they were actively doing, or plan to do, to clear up remaining confusion within the financial sector.
Bennet, a 2020 Democratic presidential candidate, has made much of the hemp industry’s potential, especially as it concerns his home state of Colorado. His initial June inquiry emphasized the role hemp is playing for his constituents and raised concerns about instances in which hemp businesses are still unable to access credit and other banking services despite the crop’s legalization.
“Hemp farmers and processors have made clear that the lack of access to the banking system is a significant hurdle to growing their business,” Bennet told Marijuana Moment. “While I appreciate the response from the banking regulators, it’s clear that more needs to be done to provide banks and credit unions with the assurance and clarity needed to remove this major barrier facing the hemp industry.”
Here’s what the agencies said in response to the senator’s request that they issue guidance clarifying hemp businesses’ ability to access financial services:
Chairman Jerome Powell said that the agency expects banks it supervises to apply “adequate policies, procedures, and processes to address appropriately the risks associated with the particular relationship as required under the Bank Secrecy Act,” and that includes hemp businesses.
“The decision to open, to close, or to decline a particular account is generally made by the financial institution without involvement of the federal regulator,” he wrote.
“The Board does not currently plan to issue guidance specific to this area, because it is our expectation institutions will apply their established policies, procedures and practices to their hemp industry customers, but we will continue to monitor this issue,” Powell said.
FDIC has “received a number of questions regarding the changes made by the 2018 Farm Bill, some of which we are able to answer, but many of which are outside our jurisdiction,” Chair Jelena McWilliams said.
“Nevertheless, we have taken a number of steps to inform financial institutions and our examiners about the changes,” which includes discussing the issue at a meeting of community bankers in March as well as personal conversations McWilliams has had during banker outreach events.
Additionally, FDIC is “in the process of providing training to our examiners on changes to the legal status of hemp and instructing them that the suspicious activity filing requirements prescribed by the Financial Crimes Enforcement Network for cannabis do not apply to hemp.”
McWilliams wrote that financial providers should assess risk on a “case-by-case basis, rather than declining to provide banking services to entire categories of customers.”
“You have my assurance that we will continue to maintain a dialogue with the institutions we supervise to reinforce this policy regarding the provision of services to legal hemp businesses,” she concluded.
Comptroller of the Currency Joseph Otting said that his agency “supports the institutions it supervises in providing banking services to any category of customers operating in compliance with applicable law” and that “[d]ecisions on the provision of financial services are bank business decisions and matters of banker judgement,” which also applies to hemp businesses.
“We expect these general requirements to apply to relationships established and maintained with legal hemp farms and producers,” he wrote.
“The OCC does not currently plan to issue guidance specific to this area,” Otting said, “because we expect OCC-supervised banks to apply their established policies, procedures, and practices to legal hemp farmers and producers. Nevertheless, we will continue to monitor this issue.”
Jeffery Hall, acting CEO of FCA, directed Bennet to a memorandum the agency previously issued in April that “outlines our exception for System institutions to develop underwriting standards for hemp production and processing to take into account applicable federal and state laws, growing conditions, and marketing opportunities.”
The memo stated that “now that there is more clarity and direction regarding the legality of hemp production, each individual System institution should determine when and under what conditions to finance producers or processors of hemp.”
Hall told Bennet that his agency “will continue to closely monitor USDA’s development of hemp program authorized by the 2018 Farm Bill and will provide additional guidance as necessary.”
“I share your concern that hemp farmers and processors may lack access to the financial services system,” NCUA Chairman Rodney Hood wrote. “Full access to the system will better enable these farmers and processors across the country to make investments in their businesses and create jobs.”
“Unfortunately, until the Department of Agriculture completes their regulations and guidelines for this program, the uncertainty for financial institutions will likely remain,” he said, referring to the ongoing rulemaking process at USDA that Secretary Sonny Purdue said would be in place in time for the 2020 planting season.
“The NCUA is working on possible future guidance to financial institutions in this area, and we are consulting with FinCEN and other federal banking agencies,” he said. “Opening, closing, or declining a particular account is a business decision for the credit union.”
“Once we are able to provide more clarity, credit unions will be able to make more informed decisions,” Hood added. “As with any such business decision, credit unions should consider their objective, evaluate the risks, and determine their capacity to manage those risks.”
Bennet isn’t the only lawmaker pushing for clarification post-hemp legalization. Another champion of the crop, Senate Minority Leader Chuck Schumer (D-NY) sent a similar letter seeking guidance on the issue from federal financial regulators on Monday.
Senate Majority Leader Mitch McConnell (R-KY), a chief proponent of hemp legalization, has also put pressure on financial institutions to ensure that hemp businesses have the same access to banking services such as federal crop insurance since the crop was legalized. The senator wrote to federal regulators about the issue in April and this week penned an op-ed detailing his work to ensure that the hemp industry is properly supported.
A top Federal Reserve official was also pressed on what the agency is doing to resolve confusion around hemp during a Senate hearing in June. The official told Sen. Jon Tester (D-MT) that her agency “will try to clarify” that servicing hemp businesses is not illegal.
Outside of the hemp realm, there’s also a growing, bipartisan call to protect banks that service state-legal marijuana businesses. The House Financial Services Committee approved legislation to allow banks to service these businesses in March, and the Senate Banking Committee held a hearing on the issue last month.
Chairman Mike Crapo (R-ID), who earlier this year indicated that his panel wouldn’t hold a hearing on marijuana banking while the substance was federally illegal, has since backed developing a legislative resolution to the issue.
Read Bennet’s initial letter on hemp banking and the agencies’ replies below:
Lindsey Graham Challenger Jaime Harrison Backs Legalizing Marijuana
The Democrat mounting a well-funded bid to oust Senate Judiciary Committee Chairman Lindsey Graham (R-SC) says he supports legalizing marijuana.
“I think we should legalize, regulate and tax marijuana like we do alcohol and tobacco,” Jaime Harrison argued this week. “There is simply no medical reason to lock people up over this issue. In essence, this is about common sense.”
The former South Carolina Democratic Party chairman said that the issue is also a matter of criminal justice reform.
“We know that marijuana arrests, including those for simple possession, account for a large number of drug arrests. The racial disparities in marijuana enforcement—black men and white men smoke marijuana the same rates, but black men are much more likely to be arrested for marijuana possession—is just unacceptable,” he said in an interview with CNBC. “Across the country, we are finding that states are legalizing marijuana and medical marijuana, and it’s just time for South Carolina to lead on this issue.”
Federal campaign finance disclosures filed on Wednesday show that Harrison, who also served as an aide to Rep. Jim Clyburn (D-SC) and a lobbyist with the Podesta Group, outraised Graham for the second quarter in a row.
The state Democratic party, on Harrison’s last day in office as chair in 2017, approved a resolution endorsing a pending medical cannabis bill in the South Carolina legislature.
“Caregivers and patients are searching for treatment options for unmet medical needs, particularly for epilepsy, Alzheimer’s disease, cancers, and the effects of chemotherapy,” the measure said. “The cannabis plant in various forms including oils, creams, drops and liquids has shown some promise in treating these medical conditions.”
A South Carolina Senate committee advanced a medical marijuana bill last year but it never ended up advancing to a floor vote.
In 2018, the state’s Democratic primary voters approved an advisory medical cannabis ballot question by an 82 percent to 18 percent margin.
Graham, for his part, opposes marijuana legalization and hasn’t brought any pending cannabis legislation up for hearings or votes in his panel, which handles criminal justice issues.
That said, he has cosponsored a handful of reform bills in past years. For example, in 2016 he signed onto legislation to protect medical marijuana states from federal interference and reschedule cannabis, and in 2017 he cosponsored a bill to remove CBD from the list of federally banned substances.
He has a mixed record when it comes to votes on cannabis amendments.
In 2015, Graham voted against an Appropriations Committee amendment that would have allowed the U.S. Department of Veterans Affairs to recommend medical cannabis to patients; but the next year he reversed himself and supported a similar measure. Also in 2016, he backed an amendment to prevent the Department of Justice from spending money to interfere with state medical cannabis laws.
Shortly after it was announced he would be taking over the Judiciary panel’s gavel, Sen. Cory Booker (D-NJ) joked that he would be sending marijuana-infused brownies to congratulate Graham, a quip that the incoming chairman seemed to appreciate.
While South Carolina typically isn’t seen as a state where Democrats are likely to pick up a U.S. Senate seat, this year’s contest between Harrison and Graham is attracting attention from national political observers due to the outsized funding haul the challenger has been able to bring in so far.
Photo courtesy of Max Pixel.
GOP Congressman Withdraws Amendment To Block D.C. Psychedelics Decriminalization
A GOP congressman filed an amendment to a spending bill on Wednesday, seeking to undermine a local Washington, D.C. ballot initiative to deprioritize enforcement of laws against a broad class of psychedelics.
But while Rep. Andy Harris (R-MD) made the case that his proposed measure represented a reasonable compromise—making it so only psilocybin mushrooms would be low police priorities and only if a doctor recommended them for medical reasons—he ultimately withdrew the amendment rather than force a vote.
“This amendment deals with Initiative 81…which would make the use of hallucinogenic drugs a low priority for enforcement in the District of Columbia,” Harris said in his opening remarks before the House Appropriations Committee.
The congressman added that he’s particularly concerned about the scope of the ballot measure, acknowledging that “there is limited data that psilocybin may be useful in some circumstances” but asserting that the same can’t be said of the other entheogenic substances such as mescaline that would be covered under the activist-driven initiative.
Watch the debate over Harris’s D.C. psychedelics amendment below:
It should be noted that while activists behind the initiative submitted their signatures last week and believe they have more than enough to qualify for the November ballot in the nation’s capital, the Board of Elections has yet to certify them. Harris acknowledged that but said “I suspect it might be [qualified for the ballot] by the time” the spending bill goes to a bicameral House and Senate conference committee that will finalize the Fiscal Year 2021 Financial Services and General Government bill for delivery to the president’s desk later this year.
It’s not clear if he was signaling that he planned to reintroduce his amendment, which also stipulates that driving under the influence of psychedelics would be prosecutable, on the House floor or if he plans to work to get a senator to tack it onto that chamber’s version of the legislation, which deals with funding for D.C.
“I think the District of Columbia is different from other cities because we have people coming in from all over the country—and we certainly, I would hope, don’t want to be known as the drug capital of the world,” he said.
There was some debate on the measure by the panel. House Appropriations Financial Services and General Government Subcommittee Chairman Mike Quigley (D-IL) and Rep. Betty McCollum (D-MN) voiced opposition while the subcommittee ranking member, Rep. Tom Graves (R-GA), and Rep. Robert Aderholt (R-AL) spoke in favor of the proposal.
“If the district residents want to make mushrooms a lower priority and focus limited law enforcement resources on other issues, that is their prerogative,” Quigley said. “Congress has allowed jurisdictions in California and Colorado to exercise their sovereign right to set policy on mushrooms, the District of Columbia too should be allowed to use their local funds to support their local needs and their priorities.”
Graves argued that “we all can agree that policies that increase the availability of psychedelic drugs in our nation’s capital, that’s dangerous.”
“As the nation’s capital, the District of Columbia, it should be a place where Americans come to see their government at work, for history, maybe go to a Braves-Nats game—it shouldn’t be a destination for illegal drugs,” he said.
McCollum said the amendment serves as another example of Congress attempting to impose excess regulations on D.C. and argued in favor of statehood for the district.
“Now we’re not even allowing the District of Columbia to move forward and decide whether or not this is a good idea,” she said. “I oppose the amendment.”
Rep. Eleanor Holmes Norton (D-DC) celebrated the amendment’s withdrawal with a taunt on Twitter, saying, “Regular #homerule offender @RepAndyHarrisMD tried to bar DC from using its own funds to enact a proposed ballot initiative on entheogenic plants + fungi or any similar law, but then withdrew it before the committee could defeat it.”
That prompted Harris to reply that the “process of educating Congress about how dangerous this initiative is has begun. DC has enough of a drug abuse problem without becoming the drug capital of the country.”
The process of educating Congress about how dangerous this initiative is has begun. DC has enough of a drug abuse problem without becoming the drug capital of the country. "Warrioronthehill" should be fighting AGAINST drug use, not FOR it.
— Rep. Andy Harris, MD (@RepAndyHarrisMD) July 15, 2020
Harris’s office didn’t respond to Marijuana Moment’s request for comment about whether he withdrew the amendment because he sensed he didn’t have the votes to pass it in committee.
In his closing remarks at the markup, the congressman said that his measure “is more than just mushrooms. That’s my whole point.”
“Mushrooms is psilocybin—that has a medical use. This includes mescaline, peyote, three other substances [that] have no medical use at all,” he said.
Melissa Lavasani, who proposed the D.C. ballot measure and is part of the Decriminalize Nature D.C. group working to pass it, said in a press release that “our campaign is about helping D.C. residents by enacting common sense reforms to police priorities that ensure that those using healing plant and fungi medicines are not law enforcement targets.”
This isn’t Harris’s first go at pushing for legislation that leverages Congress’s control over the D.C. budget to interfere in local drug policy issues.
Harris has been a consistent opponent of cannabis reform, repeatedly backing a long-standing congressional rider that bars D.C. from using its tax dollars to implement a legal marijuana marketplace. Last year, however, it was not included in the annual spending bill as introduced by House Democratic leaders and the congressmen didn’t attempt to introduce an amendment to reinsert it. It was included in the Senate version and was included in the final enacted bill following conference committee negotiations, however.
The Drug Policy Alliance sent a letter to committee leadership in advance of Wednesday’s hearing, urging them to oppose any attempts to interfere in D.C.’s ability to vote on the psychedelics reform initiative.
Photo courtesy of Wikimedia/Mushroom Observer.
Colorado Marijuana Regulators Propose ‘Franchise’ Business Model For Equity Applicants
Colorado marijuana regulators are looking for feedback on a proposal to create a franchise cannabis business model to promote equitable participation in the industry by people from communities harmed by the war on drugs.
When legislators initially approved a bill to create an accelerator program for marijuana businesses, it was only designed to give eligible entrepreneurs an opportunity to share a cannabis facility with an existing company. But following stakeholder meetings, regulators laid out a proposal to let those entrepreneurs functionally serve as franchises of current larger marijuana businesses, operating out of separate facilities but sharing branding, advertising and intellectual property under certain conditions.
“The Division contemplates certain components of this alternative ‘separate premises’ model will be similar to a franchisor-franchisee business relationship,” the state’s Marijuana Enforcement Division said in a notice last month.
In order to participate under the new model, the division said it would require a series of disclosures, including initial investments from both parties, terms of any financial arrangements and obligations for the licensee such as non-compete requirements.
Additional requirements could still be developed. For example, the department is considering whether franchisees should be offered reduced or waived rent to use facilities owned by existing businesses that agree to be “endorsement holders.” Regulators are also contemplating limitations for the amount of money a franchise can charge an accelerator licensee as a fee for use of their facilities, as well as liability rules.
“Available incentives for accelerator-endorsed licensees to support the ‘separate premises’ model may also include fee reductions resulting from increased financial assistance and no-cost rent arrangements, and reduced accelerator-endorsed licensee liability,” the division said.
Beyond potentially collecting fees from licensees, the benefit of becoming an endorsement holder under this separate premises model seems to be that they get to indirectly expand their business and exposure while supporting entrepreneurs who might not have the immediate resources to break into the industry.
That said, some advocates are weary of the proposed based on past experience.
“While accelerator programs sound good on paper, they so often create terrible long term power dynamics for smaller businesses that we can not endorse this approach,” Jason Ortiz, president of the Minority Cannabis Business Association, told Marijuana Moment.
“Any relationship that puts a small business owner at the whim of a larger conglomerate makes us concerned that the power dynamic there does not favor the smaller business, who will now have their operation tied to the success of the larger entity,” he said. “We instead encourage any business to invest in grant based programs that allow for smaller businesses to operate on their own premises and to run their business how they see fit.”
At the same time, Morgan Fox, media relations director for the National Cannabis Industry Association, told Marijuana Moment that the proposal “looks like it could create a lot of opportunities for people to get into the industry without having large amounts of capital and could generally lower the barriers of entry significantly.”
“Judging from the comments in the feedback solicitation, it appears that the possibility of predatory or unfair franchise relationships is at the front of the Marijuana Enforcement Division’s priorities and it intends to make it very difficult for endorsement licensees to exploit accelerator licensees,” he said. “However, we’ve learned from the shortcomings and abuses in other equity programs around the country that it is important to continually monitor and assess these programs to ensure their effectiveness.”
Stakeholders can fill out an online form to submit input on the proposal. A hearing to finalize the rulemaking is tentatively set for July 30.
At the same time, the division is also working on the implementation of a bill that defines who qualifies as a social equity cannabis business applicant for the accelerator program. Gov. Jared Polis (D) signed that legislation, which also gives him authority to streamline pardons for prior marijuana convictions, last month.
The division is scheduled to hold a separate hearing on implementing the new bill on July 28.
Photo courtesy of Kimberly Lawson.