The recent string of good news for hemp-related businesses started with the 2018 Farm Bill, which removed hemp (defined as cannabis with up to 0.3% THC) from Schedule I controlled substances and making it an ordinary agricultural commodity. Financial institutions can now bank hemp-related businesses in states that have the appropriate infrastructure in place to comply with the provisions of the Farm Bill. Good news if you’re looking for a hemp friendly bank, right? Lots of financial opportunities.
But also, lots of potential confusion over rules and regulations.
Unfortunately, we’ve seen this in action as farmers and other hemp-related businesses have been dropped by their banks across the country. Even long-term relationships have ended with banks kicking customers out because of what they see as potentially risky situations.
Where most banks go wrong is by following a “Don’t Ask, Don’t Tell” approach. They think that if they don’t know what their customers are doing, right or wrong, then the risks can’t hurt them. This strategy is just waiting to backfire. Of course, they’ll find out what they didn’t want to know, and have to write their customers a check and tell them to leave. It’s a good way to get into trouble and a terrible way to partner with customers.
Financial institutions are not exempt from having internal controls in place to determine the risk profile of the entity based on the nature of the business. This is especially true in the rapidly growing world of hemp-related businesses, where having those controls is key to ensuring businesses can bank safely. How do you make it more likely to bank successfully?
A.S.K. (Always Seek Knowledge)
What questions should you ask to gain that knowledge? Let’s look at five you should be asking your financial institution to make sure you’re banking hemp safely.
1. Does your bank have a dedicated hemp vertical with dedicated hemp subject matter experts?
A hemp friendly bank may have a “hemp person,” intended to meet all the needs of their hemp-related customers. What if that person gets stuck in traffic, or gets the flu, or is too darn busy being the only hemp person to properly serve their customers, let alone keep up with all of the constantly evolving regulations?
To really be able to partner with their customers in this ever-changing environment, a bank needs to have an entire vertical with people solely dedicated to hemp-related businesses. And those people need to be experts on hemp. Does your bank have just a toe in the water or are they all in? Do they have a policy for lending or taking deposits in the hemp space? Is their leadership not only on-board, but have they also accumulated the necessary knowledge and embraced banking hemp? If any of the above is a “no”, banking with them should be a no-go.
2. Has your bank written a compliance program?
The worst answer here would be, “What’s a compliance program?” Just as bad would be, “That’s a good idea! They should do that!” Yes, they should. Just being aware of compliance doesn’t come close. Knowing compliance rules isn’t good enough either.
To really bank hemp safely, your financial institution needs to create a compliance program that demonstrates mastery of the rules and regulations. Being fully compliant is crucial to having a successful business and your bank should help you get there.
3. Is your hemp friendly bank vetting you or just inviting you?
Since the dawn of time, banks have wanted your money. More money is better, no questions asked. Until now. When it comes to banking hemp safely, the best thing a hemp friendly bank can do for you is to make sure you’re as good a partner for them as they will be for you. They should want you as customers for the relationship you can develop as much as for the money you can deposit.
If your bank is ushering in your business down a red-carpet flush with rose petals, be wary. For your safety, they should be carefully vetting you. It can only help your business, and with the current challenges in the market, it’s what a true partnership needs to flourish.
4. What hard questions are they asking you?
Are they asking to see your testing samples? Your disposal procedures? Your COA? Your license? Are they asking you if you’re up to speed on the latest regulations? Are they asking if you have a safety and security plan in place that is accessible to employees? Are they doing the research to ensure your business has no operational ties to marijuana-related businesses?
If they’re asking these questions, it may not be the easiest thing for you, but it’s the best thing for you. They’re watching out for you. If they’re not, they might be honing their “Don’t Ask, Don’t Tell” skills. Or they may not even know the right questions to ask. Neither is good.
5. How well does your bank know your business?
It’s important to remember the good things that come from business partners really knowing each other. There’s a difference when a bank has deeply researched your business, the competition, and the overall category; when they’ve been to your place of business, sometimes traveling long distances to be there; when your connection to them is more relational than transactional.
We’d even go so far as to say that they should feel some ownership in your business. They don’t actually, but it should feel that way, like they’re a true partner and not just a place to put your money.
You’re putting a lot out there: your reputation, your hard work, your good name, your funding. The least your bank could do is make sure you’re banking safely. To that end, we’ll leave you with one thought:
When it comes to your hemp-related business, make sure your bank is S.A.F.E: Staffed with Subject matter experts who are All in, Fully compliant at Every level.
The key to certainty? Ask them. Follow the advice of the classic Chinese proverb:
“He who asks a question remains a fool for five minutes. He who does not ask remains a fool forever.”
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