Pub. 11 2020 Issue 1

Spring 2020 23 West Virginia Banker Controlled Substances Act by defining hemp as “the Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives … with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.” 1 Basically, “marijuana” plants meeting the definition in the 2018 Farm Bill are no longer considered marijuana. In November 2019, the USDA published an interim final rule setting forth the framework for regulating the production of industrial hemp. 2 The interim final rule addresses the mini- mum standards for states and tribal lands to administer regu- lation of the hemp production industry and provides a federal system for regulating hemp growers in states and tribal lands that have authorized hemp production but do not choose to administer the regulation of the industry. State In June 2019, West Virginia amended the Industrial Hemp Development Act to authorize hemp, as defined under feder- al law, as an agricultural crop subject to statutory require- ments. 3 In order to legally grow hemp in West Virginia, a person must be licensed by the state and renew that license annually. The West Virginia Department of Agriculture has indicated that it intends to submit a proposal to the USDA that will give it authority to regulate the hemp production industry in West Virginia. The licensing and regulation requirements relate to cultivat- ing, handling and processing hemp. There are currently no license or regulatory requirements for handling, transport- ing, or selling products made from legally produced hemp products. This includes CBD oil that is derived from legally produced hemp. BSA On Dec. 3, 2019, the federal regulatory agencies in collabo- ration with the Conference of State Bank Supervisors, issued the statement “Providing Financial Services to Customers Engaged in Hemp-Related Businesses.” The statement makes clear that banks are not required to file a SAR on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. The USDA published an interim final regulation governing growth and production of hemp and the banking regulators issued a statement reducing the Suspicious Activity Report (SAR) filing requirements. The statement reaffirms the continued requirement that banks maintain BSA programs that address customer iden- tification, suspicious activity reporting, currency transaction reporting and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers. Credit Risk The industrial hemp industry in the United States is in a fledgling state. This presents increased risks for those pro- ducing hemp. Most hemp producers have no more than a few years of experience. As with any credit decision, it will be important to not only know your customer but also to understand the industry. Some of the risks include: • Producing a crop that violates the THC limits of state and federal law; • Uncertain demand for hemp; • Oversupply of hemp that depresses prices; and • Future regulation of hemp products that limit demand or increase costs. There is great optimism around the expansion of the indus- trial hemp industry in West Virginia. Regulators are moving rapidly to provide greater clarity. The regulatory efforts con- tinue to reduce but do not eliminate the special risks related to banking hemp businesses.  1 7 U.S.C. 1639o(a)(1). 2 7 CFR 990 3 WV Code §19-12E-4 Mark Mangano is counsel with Jackson Kelly PLLC. Mark is an attorney focusing on strategic planning and bank regulatory issues. He has 26 years of experience as the CEO and owner of a community bank. You can contact mark at mark.mangano@ jacksonkelly.com or 304-284-4104.