Welcome to Hemp Legally Speaking, Frost Brown Todd's podcast about issues relating to the hemp plan and hemp products and commerce surrounding the hemp industry. I'm Jonathan Miller. I am the chair of Frost Brown Todd's Hemp Practice Group, also the general counsel for the U.S. Hemp Roundtable, which is the industry's leading advocacy organization on the national and state level.

We we have the the incredible task not simply of advising clients across the board when it comes to hemp issues, but also particularly through the U.S. Hemp Roundtable, helping shape hemp policies and helping draft the laws and regulations that govern the industry that ultimately we advise our clients on on how to follow.

So we're excited to to start this podcast is our second episode as a way to help our clients and other listeners understand the ever changing dynamic of the hemp industry. Today, we're going to tackle a really big, important issue that's been a challenge for hemp and for CBD businesses across the board, and that's banking, financial, transactions, credit cards. We have seen real challenges on this front for nearly a decade before hemp was fully made federally legal.

These challenges were ever a problem. But even after the 2018 farm bill, when hemp was taken off the Controlled Substance Act, we still have seen challenges, particularly when it comes to CBD and particularly when it comes to credit card transactions.

So to discuss this with me is my colleague, Bill Repasky. Bill has emerged in the last couple of years as one of the leading national experts on hemp banking and financial transactions, but he brings to bear decades of experience in the banking industry, both as an attorney and also as a regulator. Bill, welcome to the program.

Well, Jonathan, thank you very much. Very glad to be joining you. And thanks for that generous introduction. So I'm not quite sure I like the fact about my many decades of experience that may be giving away too much.

But, Jonathan, you're right. I spent 16 years inside one of the country's largest financial institutions. And one of the interesting things I've been able to bring to the Frost Brown Todd hemp team, in addition to all the other subject matter expertise experts that you have gathered into the team to assist clients, depending upon the facts and circumstances of their various concerns or issues or problems, is my ability to, I'm actually going to say, to serve as a translator, because I do think sometimes our bank clients have a hard time communicating to the bankers. Information that really needs to be properly presented to the bankers can adequately consider the relationship these guys want to establish and vice versa.

You know, translation or communication and communication problems, two way street and being able to talk to bankers when I need to and explain how things fit within the bank, the banking regulatory structure and why what a particular business or grower has should fit within the bank's structure is something I can bring to bear to help solve problems.

Yeah. And that's a great way to frame this discussion because on some of these broadcasts, we're talking about how laws and regulations impact the industry. Oftentimes when it comes to banking, the laws and regulations are fine. It's the way they're being interpreted and the comfort levels that banks or financial institutions have with our products.

And so. Let's start, though, with kind of the general issue. You know, we're talking about hemp, but let's let's take the camera out, zoom it out a bit and talk about cannabis. Our listeners are well aware that marijuana now is legal in some three dozen states in some form or another.

However, people are having real trouble banking in marijuana. And so if you can explain why the prohibition on the federal level continues to create problems, even in states where it is clearly legal on the state level, but marijuana commerce is OK.

Well, Jonathan, that issue, there's just so many variants but the bottom line is that you started this with marijuana, still a Scheduled one narcotic. Bankers are still reluctant to do this because so much of banking regulation, even at the state level.

You have to real quickly, and not to get in the weeds, you have federally chartered banks and state chartered banks. You have federally chartered credit unions and state credit unions. But all. Well, let's talk about bankers for a second.

All of us depend, all bankers depend, at the end of the day on passing exams and being insured and having insurance from the FDIC, the Federal Deposit Insurance Corporation, it is the absolute cannot-lose aspect of any banking business.

And the FDIC federal regulator is still looking to federal law. And in addition to that, bankers need to transfer funds. And as soon as you start talking about wire transfers, or ACH transfers between banks, it gets complicated. We also have the issue at the bank level known as what's called a suspicious activity report, Jonathan.

Are all banks for every business have an obligation to file suspicious activity report? Now, in the marijuana space, there is a subset of SARs or suspicious activity called limited activity reports. Even if the business is lawful in the state in which the bank is doing business and the bank has decided to do this business, every time a transaction occurs, every account, relationship, loan, etc. they have to file additional paperwork. That's additional time and expense that bankers are reluctant to spend.

That helps us understand why marijuana commerce is an issue of real concern for banks. But as we discussed before, the 2018 farm bill made in black and white, clear that hemp was not a controlled substance. And so we all thought that when that passed, that banking commerce would immediately be open and there would be never any more issues when it comes to help. So. So tell us why that didn't happen, why there still remain challenges for for hemp businesses, even even with the 2018 farm bill?

Well, Jonathan, the good news is it's getting better. Right now, the latest information that I rely on and work with shows that there are 174 credit unions operating in the United States that are accepting hemp accounts in over 510 banks.

There are hemp friendly banks and there's actually probably more than 510. But the date I have. So here are the issues. I think it's easier to break it down into three groups. What is our business? What is the hemp-related business?

Are we a grower? Well, Jonathan, you can probably and you might have already talked about the fact that the USDA has brought. Fantastic, in my opinion. Clarity with its new final rule from earlier this year, explaining the key issues, or at least the key problems that I was hearing from the bankers about what they need to be doing with hemp growers. You know, what is the hot crop? What can we do to affect farmers' field test hot? What is the margin for error, et cetera, et cetera? The final rule added a lot of value for the growers in this space.

And so consequently, I do think 2021 is a very promising year for banking relationships in the grower space. Processors are also subject to the 2018 farm bill. And we spend a lot of our time as lawyers working with banks to create what's known as Bank Secrecy Act compliance programs that allow our banks to onboard those processors.

And what is required? FinCEN which is the primary banking regulator, again, it's a federal agency, has issued some guidance that has helped. Tremendously in these areas. However, Jonathan, you're still right in these two areas, growers and processors. There's still some reluctance and it comes down to a couple of different issues.

One is banks sometimes just don't haven't built the required Bank Secrecy Act programs yet. Some businesses just have basic concerns about playing in the space. It's a new space. They're happy with where they are. It's new. It's foreign. it's shiny.

There might not be interested, but the good news is from the numbers I shared earlier. There are a lot of banks are willing to play in the retail space. It becomes much more problematic. And that issue that you identified is there.

The goal of our leaders in creating this new legislative program is to bring the traditional financial infrastructure of America in support of and to contribute to the growth of the entire hemp industry. And it hasn't been across the board.

The retail space is still very problematic, both in terms of getting account with the bank, getting a loan with the bank, getting other types of banking services that every retailer needs, just like a car dealership health care.

Right. So so tell me, why are retailers having this problem, particularly on the CBD side?

Well, I believe the main problem is, A: bankers are concerned about the issue of whether the products of the retailers are going to be dispensing is purely and provably. That's not the right word, verifiably not hemp related. And we often have to explain to the bankers how people can get certificates of analysis.

The testing labs that need to be involved, the degree of vetting that goes in so that we can prove the product.

So they're worried that it's marijuana, not hemp. Is that right? Or a mixed inventory.

Right. And that's also extra work, but as you're seeing from the numbers, bankers and credit unions are getting into the space because they're understanding these issues that you and the Hemp Roundtable have been working on educating.

One of the issues we really haven't talked about, and it's a banking issue, but it's not involving the traditional banks, and that's a credit card processing issue that is still a major problem because every retailer wants to get paid for.

The products are selling. And you can get paid with cash. But most people, whether you're a brick-and-mortar location or an online website, need to be able to accept credit cards. And the major credit card associations are still.

Refusing to process hemp CBD products if they are sold by a merchant in a form that is either ingestible or contains some inappropriate health claim. And so what we're seeing is the retailers are working, trying to get around the traditional merchant processing system by working with a payment facilitator, which is a type of merchant processor, such as Square, for example, or they're going with what I consider to be the sharks of the industry who have terrible terms and conditions for retailers, but they may be the only game in town for some people.

So this then ultimately when it comes to CBD, ingestible CBD, the challenge goes back to the FDA and the fact the FDA has claimed that CBD ingestible products are illegal. And so you have these credit card companies saying, well, we're not going to do business, allow them to allow you to use our credit cards until or unless the FDA comes out with clarity on regulations. Is that is that ultimately what's happening here?

That is 101 percent correct. They hold the key to really. It introducing all this industry to the financial infrastructure of the United States. Yes, right now, I believe that's exactly correct.

So you've identified the problems here, and so much of it relates to ignorance, lack of education, fear of risk, and also the FDA's issue. So but you advise clients every day on and I don't know what to say, how to get around them, but how to how to get folks to recognize that these products are legal and OK and can do business. So what are the kinds of tips that you give to clients about help helping them access banking and credit card services?

Well, the number one thing is talk. Let us talk with you before you go and approach the bank, because we're going to be able to tell you from the work. And to be fair. Jonathan, we represent both the hemp industry and the people involved, but we also represent banks.

We see both sides of the equation. We know the questions or we believe we can anticipate the questions that any businesses banker is likely to ask them. And so we can prepare, we can make sure that they have the documents that are needed and will be requested.

We can explain how this process is going to unfold, what their needs are going to need to be able to share so that the transaction flows with a little bit of luck seamlessly and the account relationship is opened and the access to the banks, the lending portfolio, different issues slightly for a bank loan.

But because we've seen both sides of the equation, we can help there. The main issue, I would have to say, is an informational disadvantage. A hemp business knows things and a banker knows things, and sometimes they don't necessarily know what they need to be sharing with each other or educate with each other on.

That's why I said at the very beginning, it seems like a lot of what I do is serve as a translator to make sure that the two sides are actually talking business to business as opposed to talking across or through each other.

What we've seen happen is the cannabis, hemp, and banking industries all get together to support the Safe Banking Act as a way to help rid some of both the legal as well as reputational issues that are associated with it.

So can you share a brief summary of the Safe Banking Act, what it does in general, but also the provisions that we were able to help secure in the House of Representatives?

It is primarily a cannabis-related bill, but it does have important language in there for the hemp industry. The basic problem that the cannabis industry has been facing is due to its lack of traditional banking options. Even businesses that may lawfully operate in the state have.

Been forced to deal with large amounts of cash. This is never a good thing. And according to the stated purpose of the proposed Safe Banking Act, everyone recognizes that this makes these businesspeople targets for robberies and therefore a threat to public safety.

And so the act is designed primarily to reduce that risk to the business and to the public by allowing them access to the traditional banking systems that all the businesses can. That essentially protects depository institutions. And here we're talking national and state banks in federal and state credit unions.

It protects those institutions by providing certain lines of business, providing that they may engage in certain lines of businesses in stake in serving state-compliant cannabis businesses and hemp businesses without violating or without the risk of being found to be operating in violation of federal laws, particularly those laws like the Federal Bank Secrecy Act, which I've spoken

up before, sometimes called the Anti Money Laundering Act. It provides a layer of protection to those bankers who want to serve the cannabis space on the hemp side. I argue and have often discussed with bankers that they already have that protection, but nonetheless having that additional what card in your hand to play with your bankers is going to be a great help to the hemp customers.

Also, the Safe Banking Act requires the federal banking regulators like the FDIC, the Federal Reserve, to issue on a time deadline once the act is passed. Specific rules that are clear, informal guidance that the banks can read and rely on in that credit card companies can read and rely on about

the legality of hemp and CBD commerce. Particularly for the hemp marketplace. The sections of the Safe Banking Act that are most enthusiastic about are sections 11 and 12.

And among these provisions and I don't we will not drill down in the details, but they specifically point out in black and white that CBD products derived from hemp have been particularly affected by this uncertainty and that the Safe Banking Act is intended to bring greater certainty to this.

I think you might say in summary about the Safe Banking Act, the rate, or at least I would say one of the main reasons I'm so enthusiastic about it is that assuming that it does pass into federal law, the Senate approves the version the House has sent over to it and substantially identical form.

The cannabis industry and the hemp industry will be benefited because it will provide greater protection and certainty to the bankers and the insurance companies and other businesses that we count on as business players to do our primary business and by giving certainty, clarity, safe harbors to those industries, we're going to bring more of the traditional financial infrastructure into support our businesses. That means we're going to reduce the costs. We're going to get more opportunities to talk to more banks and credit unions.

And as these new entrants come into the marketplace, I think they're going to be bringing new products that we hope will benefit the banking industry.

Thank you. All right. So what if I'm a hemp or CBD business? What what what steps do you recommend I take to access the full range of banking and credit card services?

Well, get started right now because you can't access the full range of banking services. You just need to know who to go to and who needs to be on your side to make sure that you get the rights and privileges of the banking infrastructure that is available to you.

That means put all your ducks in a row, get all your documents together, identify from talking, maybe people in the industry which banks have proven to be most friendly and most receptive to that and begin opening up relationships.

We open up relationships coast to coast with hemp-related businesses and banks because they're constantly new banks are constantly coming online who are interested in the space and because of my involvement in the space I often hear about these bankers who are now going to be able to onboard accounts and want us to make sure that Frost Brown Todd refers some work to them when we have the opportunity. Again, don't lose fact of what you are as a business. Don't get so enamored by the novelty of the hemp or the CBD space that you lose fact that you're still going to have to present a business case for your business to your banker.

We can help you in making sure that you have all your ducks in a row so you have the documents that you need. We know what the doc the banks will be asking. We can make sure that all your package is ready. So when you sit down with your banker for the first time, you're not scrambling to find things that you didn't know you'd be expected to show.

Great. Well, and I also the one thing that you can also do, whether you are looking for banking services or just simply think that this issue should be resolved completely is go to hempsupporter.com. U.S. Roundtable's website and help in the effort to pass the Safe Banking Act, but also to pass absolutely legislation, H.R. 841 and S. 1698 in the Senate, which would clarify the legal pathway for the sale of ingestible CBD products. So if we get both of those bills passed, then all of these problems should go away now. Yes. As a reminder, a bank doesn't have to do business with you.

This is a private entity. There's they're under no obligation to get involved in this case. But if we to do that, if we get emails sent to our legislators in Congress and get these bills passed, then really 99 percent of the legal protections for this important commerce will be justed.

So Bill Repasky, thank you so much for joining us on this podcast. And if folks want to take him up on this offer to help them access the kind of banking and credit card services that hemp and CBD businesses are looking for.

Bill's email is brepasky@fbtlaw.com. My email is jmiller@fbtlaw.com. And we look forward to serving you. And also, please come back. Stay tuned. We will have many more episodes of Hemp Legally Speaking. Our new podcast on hemp and CBD issues and how you can navigate this tricky set of federal and state laws and regulations. Bill, thanks so much for joining us.

It was fun talking to your audience, Jonathan. Terrific.

If you have questions or ideas for Hemp related topics, email us at hemplegallyspeaking@fbtlaw.com.

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