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March 15, 2021   /   Andrew Sheaffer

Hemp is a crop that has a storied past in American history. It was a widely grown crop during the time of our nation’s inception. Even founding fathers George Washington and Thomas Jefferson were known to be involved in the farming of hemp. This changed, however, in 1937 when the Marihuana Tax Act passed, which made farming hemp incredibly difficult for Americans through strict regulations and high taxes. To further restrict hemp production, an act was passed in 1970 which declared all cannabis plant varieties, including the hemp plant, Schedule 1 Controlled Substances. With the passing of this Act, the only way to legally grow hemp was to obtain a permit from the DEA.

In recent years, however, legislation has passed that has eased up these restrictions that were in place. One of the most influential pieces of hemp legislation was the passage of the 2018 Farm Bill, which transitioned oversight of the crop from the DEA to the USDA.

This seal of approval from the Federal Government prompted the USDA, FDA and other government entities to create regulations and guidance in order to establish the framework for how the crop will be regulated on a federal level. This Bill was a huge step forward for the hemp industry as it allowed companies that comply with regulations to grow and sell hemp freely, which fueled their growth and the growth of the entire industry.

2014 Farm Bill Sets The Stage for the Hemp Industry

The Bill that set the stage for the 2018 Farm Bill was the Farm Bill of 2014. This bill made great strides for hemp to become legal in the eyes of the Federal Government. The goal of this Bill was to begin allowing certain entities to form “pilot programs” to research industrial hemp. Institutions of higher education, state departments or state sponsored entities were allowed to grow and research industrial hemp, assuming all pilot program activity was in line with their state’s regulations.

This Bill also defined the difference between industrial hemp and marijuana. It states that the hemp crop cannot contain more than 0.3% Delta-9 THC, which is the psychoactive compound found in the cannabis plant. Any cannabis plant that contains 0.3% or less THC would be considered hemp, while a plant that contains more than 0.3% THC would be considered marijuana.

How The 2018 Farm Bill Allows the Hemp Industry to Grow

The 2018 Farm Bill went further than just allowing research from higher education institutions and government departments. This Bill fully removes any hemp product that has 0.3% or less THC from the DEA’s controlled substance list. With the passing of this Bill, the general public can now legally grow and sell hemp. The definition of hemp has since been changed by the USDA to include all THC (not just Delta 9) for the pre-harvest 0.3% limit.

One of the biggest aspects of the Bill is that these new regulations explicitly allow hemp companies to sell their product across the nation. As long as the hemp product itself meets regulations, there are no restrictions on the selling, transportation or possession of the hemp crop or the products that are derived from it. This allows for a nationwide network of companies to begin supporting and conducting business with each other, something that is necessary for any industry to truly blossom.

This also allows federally regulated entities, like banks, to begin operating in the space. Hemp companies can now operate more efficiently and safer since they no longer need to operate on a cash-only basis. In addition, hemp companies can also take advantage of Federal Government benefits like USDA loans or crop insurance. You can learn more about the USDA’s full list of hemp programs here.

The 2018 Farm Bill allows for fewer restrictions and more support from agencies and companies that are federally regulated. Hemp farmers, processors and all other businesses related to the hemp industry are emerging across the country, creating a nationwide industry supply chain that will help facilitate the growth of the industry.

State Specific Hemp Regulations Emerge From the 2018 Farm Bill

The 2018 Farm Bill prompted the USDA to create a federal set of guidelines and regulations regarding the growing of hemp. However, the Bill also allowed for state governments to create unique plans that growers in that state must adhere to. Once these plans are created, they must then be approved by the USDA. Native American Tribal governments are also able to create plans unique to their Tribes, many of which already have an approved plan in place.

The details of these state or Tribal specific plans include:

  • Procedures for testing the THC concentration in the hemp crop
  • How the state will monitor where hemp is grown
  • Plans for disposing of plants and products that are found not to meet Federal guidelines 
  • Process for what actions a state will take when a company violates the Federal hemp laws

This means that, although hemp is federally legal, many states will have specific nuanced regulations depending on the details of their plan. If a state wishes to not create a unique plan, they can either continue to operate under the 2014 Pilot Program rules or they can simply opt to have hemp growers in their state use the USDA plan and set of rules by applying for a Federal Producer’s License.

The 2014 Pilot Program is set to expire in September 2021. At this point, any state still operating under this Pilot Program will either need to create their own state plan or opt to use the USDA Federal plan.

Below we detail the current status of what plan each state is using:

2018 farm bill state specific regulations

The varying state-by-state regulations are one of the reasons that many financial institutions are a bit hesitant to operate in the hemp industry. This adds a layer of regulatory complexity that many do not want to spend the time figuring out. Having a bank that truly understands all of the federal and state regulations on hemp is paramount to ensure the financial security of hemp businesses.

The hemp industry has grown substantially in recent years thanks to the 2018 Farm Bill easing restrictions for the crop. Although the industry still faces challenges, there is an exciting path ahead for hemp businesses of all types. At West Town Bank & Trust, we are proud to be a part of this industry and to be a trusted financial partner for hemp companies across the nation.

About West Town Bank & Trust

At West Town Bank & Trust, our most important goal is to understand what’s important to you, what’s getting in your way, and what you hope to achieve, so we can help you get there. Since 1922, we’ve been creating long-lasting relationships with our customers based on old-fashioned values and future-thinking ideas.  Whether solutions come from surprisingly innovative tools or trusted products you’re familiar with, our single-focused purpose is your financial well-being.

Some banks aren’t willing to bank hemp-related businesses. At West Town Bank & Trust, we don’t just bank hemp, we embrace it.  We are a hemp friendly bank and have done a tremendous amount of diligence concerning hemp rules and regulations and have written a compliance program to make sure our clients operate within compliance.  If you’re in a hemp-related business and need a bank that understands your needs and your industry, we’re ready to help you bank hemp safely.