On May 13, 2019, Governor Kim Reynolds signed Iowa Senate File 599 into law, which begins the process to allow for the industrial production of hemp within the State of Iowa. Prior to 2018, hemp was deemed a Schedule I narcotic and banned under the Federal Controlled Substances Act. The 2018 farm bill passed by Congress removed hemp from the list of controlled substances, and opened the door for states to legalize the production of hemp. The Iowa Department of Agriculture and Land Stewardship (“IDALS”) must now submit a proposed regulatory plan to the U.S. Department of Agriculture (“USDA”) for approval.
While hemp is not considered marijuana, both come from the same Cannabis species, which often times results in the two being lumped together. The key distinction between the two is the level of delta-9-tertrahyrdocannabinol (“THC”) found in each plant. Typically, hemp carries a threshold THC level of 0.3% on a dry weight basis, which is much lower than the THC found in marijuana – which often ranges between 5%-35%. Industrial hemp is grown for its fiber and oilseed, and is commonly found in products such as dietary supplements, skin products, oils, plastic, food, clothing, and accessories.
It is important to note that farmers cannot begin growing hemp until the USDA approves the IDALS plan. The IDALS anticipates that the earliest farmers can begin growing hemp will be during the 2020 crop season, provided USDA approval is obtained. Once approved, Iowa farmers will be allowed to grow up to forty (40) acres of hemp. Farmers interested in growing hemp must first obtain a license from the IDALS. Additional information on Iowa’s new hemp law can be found on the IDALS website.
While a new industry is on the horizon for the State of Iowa, the law remains unclear for banks and other lenders who want to assist these new entrepreneurs. Previously, the U.S. Department of Justice (“DOJ”) under the Obama Administration issued guidance known as the “Cole Memo” concerning the priorities of enforcement of marijuana-related offenses by federal prosecutors, in light of the growing trend of legalization of marijuana by the states. In response to the Cole Memo, the Financial Crimes Enforcement Network (“FinCEN”) in 2014 issued its own guidance clarifying the Bank Secrecy Act (“BSA”) and establishing a procedure for banks and financial institutions to conduct business with marijuana-related businesses, including certain due diligence requirements and the filing of a suspicious activity report (“SAR”) for all transactions conducted or attempted by the business.
While the Cole Memo and 2014 FinCEN guidance began to open the door for lenders to do business with marijuana-related businesses, that door may have been shut when the DOJ under the Trump Administration rescinded the Cole Memo in January of 2018. The 2014 FinCEN guidance, however, remains in place; thus creating uncertainty for banks and lenders as to how, or even if, they should be conducting business with marijuana-related businesses.
While hemp is no longer considered a Schedule I narcotic, financial institutions still have concerns in doing business with hemp-related businesses. In April, Senator Mitch McConnell (R-KY) and Senator Ron Wyden (D-OR) sent letters to the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve System, and the Farm Credit Administration (“FCA”) requesting that these regulatory agencies provide guidance to financial institutions “to ease concerns banks and other financial institutions may have with providing services to hemp businesses.” Ultimately, until there is greater clarity under Federal law, lenders will remain cautious and will likely wait on the sidelines until these regulatory bodies weigh in.
SPMB’s banking and finance group will be having a discussion on Iowa’s new hemp law, along with a much broader look at the legal and regulatory issues surrounding the growing trend of medical and recreational Cannabis, during its June 27th webinar entitled “New Age Borrowers – Considerations Regarding Marijuana and Marijuana Related Businesses”. Persons interested in attending the webinar can sign up here.
Christopher K. Loftus
Simmons Perrine Moyer Bergman PLC
Disclaimer: This information is intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired.