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December 8, 2019 CONTACT

Banking and Hemp: The Effect of the New Farm Act

While this is potentially good news for farmers and their bankers, questions remain for bankers about how they can effectively identify a legal hemp crop and distinguish it from an illegal marijuana crop. Although industrial hemp typically looks very different from marijuana grown for recreational consumption, both are derived from the same genetic species: cannabis sativa. Under the Act, the legal difference appears to be based on the THC levels in the processed (or “dry weight”) product.

The Act defines “hemp”  to mean: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Act, §10113.

The revisions to the Federal Insurance Crop Act use that same definition and provide that “hemp” as so defined can be insured under the federal crop program. Act §§11101 and 11119.

Thus, the legality of marijuana under federal law will be determined by whether the THC it contains, by dry weight, is less than 0.3 percent. If the THC level is 0.3 percent or greater, the crop is still subject to the federal Controlled Substance Act as a Schedule 1 drug (similar to heroin).

As the Act goes into effect and federal regulators weigh in on it, banks will need to consider whether they are willing to lend against the legal crop as they would against any other agricultural product, and will also have to examine how they can ensure that the crop against which they are lending has a legally acceptable THC level.

We are starting to work with botanists and others to see how lenders can lend against hemp crops and audit the crop’s compliance with the Act. Certainly, the approach that will be taken by the Federal Crop Insurance Corporation and the Secretary of Agriculture concerning the Corporation’s providing of crop insurance for hemp will be critical for bankers wanting to enter the field.

 

Barry A. Abbott

Barry Abbott represents established corporations and startups in all aspects of their corporate, financial services, internet, payments and e-commerce businesses. He is nationally recognized for his work advising clients on developing ground-breaking consumer financial services products.

Barry Abbott is a pioneer in e-commerce lending matters. National and international financial institutions look to him for counsel on major transactions. He also advises startups (including crowdfunding, peer-to-peer and gaming companies) on corporate and regulatory matters. Notably, Barry was:

  • Involved in developing the legal documents for the first equity line product (for Crocker Bank in the late 1970s)
  • Principally responsible for developing all legal documents for the first major reverse mortgage program (for Transamerica HomeFirst in the late 1980s)
  • Original legal counsel responsible for organizing the National Council of Real Estate Investment Fiduciaries (NCREIF)
  • General Counsel to the REX Group, which developed the first true home owner-occupied option investment product and marketplace
Sean Hocking

Sean Hocking


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The Hemp Market Report will target news from the fast growing worlds of cannabidiol (CBD) and hemp. As a sister site to the Green Market Report, HMR will cover financial stories, but also take a look at lifestyle news as well. The Hemp Market Report will also publish sponsored content as we seek to expand our content offerings.


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