Financing for industrial hemp? Proposed legislation may help bankers serve this industry

By Patrick R. Baker, Associate Professor of Law, The University of Tennessee at Martin
Paula Hearn Moore, Professor of Accounting and Business Law, The University of Tennessee at Martin
Alyssa K. Wade, Senior, The University of Tennessee at Martin

Offering banking services to hemp producers has been wrought with problems over the past decade. Due to inconsistencies between federal and state laws along with the complicated history of hemp, financial institutions hesitate to assist Cannabis-related businesses fearing possible liability and the perceived stigma of industrial hemp. This article examines a brief history of federal hemp laws along with the current Tennessee legislation, the need for industry change, and what lawmakers are currently proposing to solve these issues.

While federal Cannabis legislation has developed within the past decade, laws and regulations remained relatively unchanged from the mid-1800s until 2014. The 2014 Farm Bill sparked the evolution of hemp legislation which, not only allowed universities in Cannabis-legal states to grow the plant for research purposes but also, distinguished “hemp” from other forms of Cannabis.1 “Hemp” is a Cannabis derivative containing equal to or less than 0.3% of THC (delta-9-tetrahydrocannabinol) with any substance containing more than 0.3% of THC being labeled “marijuana” and deemed illegal.2 Although Congress distinguished hemp from marijuana in 2014, the Financial Crimes Enforcement Network (FinCEN) continued to require banks to report any Cannabis-related transactions as suspicious activity without differentiating potential borrowers as hemp or marijuana businesses.3 This requirement was changed with The 2018 Farm Bill.4 This legislative act removed hemp as a Schedule I controlled substance, which was previously enacted by the Controlled Substances Act of 1970. While this removal legalized a financial institution’s loan to a hemp-related business, FinCEN created an extensive and troublesome process to distinguish between the two substances to determine eligibility for financing. For a bank to lend to a hemp producer, the producer must be compliant with both state and federal laws, and the bank must perform routine assessments of the farming operations to ensure compliance. Further, Federal Money Laundering Statutes declare, “any transaction involving the proceeds of the manufacture, distribution or sale of cannabis (sic) to be illegal even if the transaction would be permitted under state law.”5 This law confirms the illegality of Cannabis at the federal level which blurs the effect of previous legislation. Due to these complexities and conflicts, banks have refused to loan to hemp farmers.
Specifically, Chapter 7 C.F.R. § 990 governs hemp production. In 2015, Tennessee adopted the federal regulatory program as its own.6 Specifically, the pertinent regulations include hemp production plans found in §990.3, violations of established plan requirements located in §990.6, and licensures with the USDA per §990.7.7 Tennessee’s adoption of the federal regulatory program allows for easier compliance of both.
Banks and financial institutions are reluctant to serve any suspected Cannabis-related business. Since the passing of the 2018 Farm Bill, only 2% of U.S. financial institutions lend to hemp-related businesses.8 This reluctance to provide financing has caused multiple problems for hemp producers. Without financing, hemp businesses are cash-intensive and more susceptible to criminal activity. The previous illegality of hemp production has resulted in little research conducted on efficient ergonomic practices. The lack of documentation has hindered the implementation of tax laws that would allow hemp farmers to recognize tax loss on futile crops.

Hemp farmers and producers are calling on legislators to make changes, and producers are finally receiving a glimmer of hope with two favorable proposals. First, the Secure and Fair Enforcement Act (SAFE Act) was introduced in 2019 by Colorado Representative Ed Perlmutter.9 Its purpose is to move hemp businesses away from cash-intensive operations and less favorable alternative financing sources by prohibiting federal regulators from punishing banks that serve Cannabis-related businesses. It also amends Federal Money Laundering Statutes so that “proceeds derived from transactions involving a cannabis-related (sic) legitimate business will not constitute proceeds from an unlawful activity just because a cannabis-related (sic) business or service provider conducted the transaction.”10 The act passed in the House of Representatives, died in Senate committee, and was reintroduced in 2021 by Oregon Senator, Jeff Merkley where it is currently before the Committees of Jurisdiction.
Second, the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) was introduced in 2018 to correct the discrepancies between federal and state law. This Act provides that anyone acting in compliance with state law regarding the manufacture, production, possession, distribution, dispensation, administration, or delivery of Cannabis would not be held criminally liable under federal law.11 While this Act does not expressly mention financial institutions, it does relieve banks from being required under federal law to report hemp-related transactions as suspicious activity in states that have legalized marijuana. The STATES Act passed in neither of the Congressional houses but was reintroduced to the House of Representatives in 2019.
While neither Act has passed in Congress, bankers should monitor both Acts as either could impact their business operations in upcoming years as Congress looks for additional sources of tax revenue. The passing of both these Acts would be monumental in the growth of the hemp business and the support financial institutions can provide to them.

1. H.R.2642 – 113th Congress (2013-2014): Agricultural Act of 2014, H.R.2642, 113th Cong. (2014),
2. FinCEN releases guidance regarding due diligence under the BSA for hemp-related business customers, Covington & Burling LLP, (last visited Feb 27, 2023).
3. BSA expectations regarding marijuana-related businesses, BSA Expectations Regarding Marijuana-Related Businesses |, (last visited Feb 27, 2023).
4. H.R.2 – 115th Congress (2017-2018): Agriculture Improvement Act of 2018, H.R.2, 115th Cong. (2018),
5. Katherine P. Franck, Notes & Comment: Cannabis Reform: High on the Banking Agenda, 24 N.C. Banking Inst. 163, p. 167 (2020).
6. Hemp rules and regulations Tennessee State Government –, (last visited Feb 17, 2023)
7. 7 CFR 990.3, 7 CFR 990.6, 7 CFR 990.7
8. Cannabis banking: What marijuana can learn from Hemp – Boston University, (last visited Jan 30, 2023).
9. H.R.2722 – 116th Congress (2019-2020): SAFE Act, H.R.2722, 116th Cong. (2019),
10. Laundering of monetary instruments, U.S. Code 18 § 1956 (2021),
11. H.R.2093 – 116th Congress (2019-2020): STATES Act, H.R.2093, 116th Cong. (2019),

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