Banking Burdens

In 2016 , when John Strohfus opened Minnesota Hemp Farms Inc., a company that grows hemp predominantly for seed and food products, he turned to Wells Fargo to start a bank account. Having banked with the institution for more than 40 years, it was a natural decision for Strohfus.

People had warned him that he could run into trouble with the bank simply for having the word “hemp” in his company name. (At the time, hemp production was only legal in states with pilot programs.)

“I said, ‘That’s nonsense,’” recalls Strohfus, who is also the chairperson for the U.S. Hemp Growers Association. “This is a farming entity. We’re registered, in the state, we’re licensed, and I [was] happy to have that challenge. So I expected a little bit of a challenge opening an account with Wells Fargo. But it went through like butter.”

Two years passed issue-free. But in 2018, “out of the blue,” Strohfus says Wells Fargo sent him a letter declaring it would be closing his account in 30 days.

“Thank goodness I had at least 30 days. Others have not had that. To change all your processes that are tied to the bank is a daunting task that takes more than a few days,” Strohfus says. “Banking is one of the most critical foundational elements of any business.”

While Strohfus’ encounter happened in the early years of hemp legalization, his story is one that is common throughout the industry even today. From farmers to vendors, those all along the hemp supply chain are having trouble accessing a range of financial services, including opening checking accounts, receiving bank loans, gaining access to merchant processing and more. In some instances, banks provide only some of these services to businesses that need a larger suite of solutions. In other instances, banks avoid hemp businesses altogether.

The problem is apparent in the numbers: Out of more than 5,000 federally insured banks in the U.S., fewer than 200 are willing to work with hemp businesses, according to a tracker created by Fincann, a company that connects cannabis businesses with banks and other financial services.

It’s an issue that many in the industry are grappling with—but others are working to solve.

A Common Tale

Many stories of failed hemp banking ventures begin similarly: Hemp business owners open an account with a relatively large bank and find the process surprisingly easy.

Harold Singletary, the treasurer for the U.S. Hemp Growers Association and owner of BrightMa Farms, a CBD and hemp clone producer, had been banking with BB&T Bank (now owned by Truist) for several years when he opened his business account there. (At the time, his business was called Low Country Hemp Extracts.) “I thought it would be easy,” Singletary says. “They didn’t flinch when I had hemp in my name.”

But like many others, about two years ago, Singletary says he received a letter in the mail and a check from the bank indicating it had closed his account.

Even as recently as early February 2021, Bank of America made headlines when the Virginia Hemp Coalition released a statement about the institution closing a hemp account “without warning or notice.”

The coalition said in a Facebook post that the hemp company sells hemp hurd for animal bedding—a form of hemp that is completely nonintoxicating.

“If you have money with them we suggest you pull it out and open an account [with a bank] who respects hemp businesses as they should,” Virginia Hemp Coalition wrote on its Facebook post. “We must fix the banking issue for hemp businesses. ... Hemp businesses are just as valid as any other legitimate business and banking services should never be denied.”

When banks drop their hemp customers, it’s common to receive little explanation about why—if they receive any explanation at all.

Strohfus says he spent years trying to figure out why the bank closed his account.

“This is the feeling of corporate banks—they have a policy, and it’s the Wizard of Oz behind the curtain,” Strohfus says. “You don’t understand why decisions are being made, and there’s no communication to the customer.”

Strohfus says he’s seen other situations where farmers decide to dip into hemp in addition to numerous other crops they grow on their land. Even with multiple crops growing on thousands of acres, Strohfus says he’s seen banks turn down or drop farmers who grow hemp, regardless of its end use.

“People wonder why farmers are reluctant to grow hemp,” Strohfus says. “This is the No. 1 contributor to that.”

Risky Business

In tales of banks dropping hemp businesses, banks often cite “risk” as their reasoning for doing so.

In a public comment on the U.S. Department of Agriculture’s (USDA’s) interim final rule on hemp, the American Banking Association (ABA) laid out potential areas of risk for banks, including hot crops not being covered by insurance. The ABA noted that “this risk is significant. As a result, bankers will be either less likely to accept the risk and finance the crop or, if the bank does accept the risk, will be required to price the loan at a significant cost to reflect the risk.

“For bankers, the ability to effectively manage and mitigate risk is of paramount importance when deciding whether or not to enter a new product line,” the ABA added in its comment.

But Nathaniel Gurien, the founder and CEO of Fincann, asserts banks’ biggest concern is losing federal insurance for partnering with hemp businesses. It’s a fear that, so far, has been unfounded, Gurien says.

“While many profess to fear losing accreditation or FDIC [Federal Deposit Insurance Corporation] status from the federal government, the reality is that no financial institution that is [making] or has made a reasonable effort to compliantly bank the industry has suffered such consequences as a result,” Fincann says on its website. “On the other hand, a cash-only business opens up the opportunity for tax evasion and other financial crimes, making it the interest of the federal government for banks to conduct business with [cannabis-related businesses].”

The real problem, Gurien says, is that a lack of clarity about some areas of hemp production—and, even more predominantly, around CBD—creates more work for bank systems. Banks have intensive protocols on how they handle business with different industry sectors. In order for banks, especially larger systems, to work with hemp businesses, they need to develop those protocols to outline which risks they’re willing to assume.

It requires the banks to have extensive knowledge of the industry, which takes time to fully understand—especially as regulations are in flux not only nationally, but also within each state.

“You have to have confidence that your standards will keep you out of trouble,” Gurien says. “It’s kind of a lot to bother with.”

Another problem is that because the industry is so new, most companies in the space are essentially startups with little collateral, making them less appealing to work with than those in other more established industries, he says.

Gurien notes that brand-new farmers and business owners with no prior experience in their lines of business will have issues finding loans because they have no history to show. They inherently represent more risk for banks to finance.

But even for experienced business owners, the above issues, coupled with a lingering stigma associating hemp with federally unregulated cannabis, results in few well-known banks willing to back the industry.

“[Hemp businesses] represent a lot of work and a significant amount of risk, without guidelines for the bank, for [a] tiny [amount of] money,” Gurien says.

Hemp Friendly Solutions

As hemp business owners continue their search for financial services, some have strayed from traditional banks and instead created their own patchwork of solutions. Some hemp farms, for instance, have turned to the online crowdfunding website Steward for loans. The website allows sustainable farms to raise money with a set loan term and interest rate. Those who invest will receive the interest payments. (Steward has so far fully funded three hemp ventures, and its founder, Dan Miller, says it has received numerous other applications from other hemp farms.)

Others have turned to independent merchant processors for sales transactions. (For more on merchant processors, see the “Beyond Banking” sidebar.)

But as the industry becomes more mature, a light at the end of the tunnel is coming into view. Some have had success with finding a full menu of services from banks—mostly smaller community banks. Singletary, for example, has had success in the past two years banking with Black-owned Optus Bank out of South Carolina. Singletary discovered the bank through a webinar about hemp and says he has had no problems since.

“I’m excited that they’re a community-driven Black bank,” Singletary says. “The small banks are community banks, and they’re looking to support their community. … Thankfully we have these banks to bridge the gap.”

And after Wells Fargo suddenly dropped him, Strohfus turned to the Minnesota-based Vermillion State Bank for services and has been with the bank since.

“It’s a corporate bank issue versus independent banks,” Strohfus says.

Gurien says it’s important for banks working with hemp businesses to stay updated on the latest regulations. To that end, some banks, such as West Town Bank & Trust and Customers Bank, have developed internal programs specifically for the hemp industry.

Many of the banks willing to work with hemp have an extensive vetting process that requires risk analysis, background checks, proof of legitimacy from certificates of analysis and more. Some even charge additional monthly fees to service hemp businesses.

But the additional work and fees typically mean the bank is doing its due diligence, Gurien says. “They’re most likely to be able to stay above any regulatory fray,” Gurien says. “The likelihood of being shut down is vastly less with higher fees.”

Hemp Banking on a National Level

Hazy regulations are likely to deter corporate banks from the industry until the multiple agencies overseeing the hemp industry provide clear guidance.

Melissa Marsal, executive vice president and COO of West Town Bank, anticipates the Secure and Fair Enforcement (SAFE) Banking Act could provide some needed clarity to more banks if it passes. U.S. Rep. Ed Perlmutter, who has introduced the act to Congress every year since 2013, recently told The Denver Post he’s “pretty confident” it will pass this year.

“I think many banks are taking a 'wait and see' approach as it relates to the SAFE Banking Act, which is still in limbo,” Marsal told Hemp Grower in February. “The act was designed to prohibit federal regulators from punishing financial institutions for the sole reason that they choose to provide … services to cannabis companies, their owners and their employees.”

And Strohfus says the U.S. Hemp Growers Association, along with other industry associations, is working this year to meet with state and federal lawmakers to figure out ways to create a more open banking environment for hemp businesses. But even industry associations are not immune to the industry's banking issues—Strohfus says the U.S. Hemp Growers Association, a 501(c)(6) nonprofit organization, has been turned away by U.S. Bank for credit card processing services simply because of its relation to the industry. (Hemp Grower contacted all national banks mentioned in this story. None could be reached except Truist, which declined to comment.)

Ultimately, more accessible hemp banking will likely take a group effort. Strohfus says hemp businesses can take part in the effort by contacting their local legislators and educating them about the problem.

“I’m hoping that with the USDA’s final rule being established and the new administration settling in, that will be able to reopen this dialogue,” Strohfus says.

Theresa Bennett is editor of Hemp Grower.