CBD Banking Regulations

Published
September 18, 2024
Category
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CBD businesses are on the rise, but finding a bank willing to work with them?

That’s a whole different story.

Despite the legal status of hemp-derived CBD under the 2018 Farm Bill, financial institutions remain wary. This has resulted in a complex web of banking regulations that often leaves CBD businesses without reliable financial services.

This uncertainty creates significant obstacles for companies trying to grow in an industry valued at $4 billion in 2019, projected to grow to $16 billion by 2025. Without access to dependable banking, businesses face cash flow issues, increased risks, and difficulty scaling their operations.

But navigating these regulations doesn’t have to be a roadblock.

Businesses can easily unlock opportunities, secure financial stability, and stay compliant by understanding the intricacies of CBD banking policies.

In this article, we’ll break down the latest trends in CBD banking regulations and share how businesses can maneuver through the complexities.

Stay tuned—there’s more than meets the eye when it comes to securing the right banking solutions.

CBD Banking Regulations and the Legal Landscape

The CBD industry presents unique banking challenges due to its complex legal status. Financial institutions must carefully assess compliance risks, leading many to avoid offering services to CBD businesses altogether.

Banks face stringent regulations, including federal guidelines from FinCEN and joint agency guidance, which require thorough due diligence and risk management when working with CBD clients.

Additionally, varying state laws add further complexity, creating a patchwork of regulations that businesses must navigate. For CBD companies, securing reliable banking requires a deep understanding of these multifaceted legal frameworks and aligning their operations accordingly.

Navigating Federal and State Compliance Challenges for CBD Businesses


The CBD industry operates in a legal gray area, where the dichotomy between state and federal law creates a complex regulatory environment for businesses.

As we mentioned earlier, CBD derived from hemp is federally legal under the 2018 Farm Bill. However, varying state laws introduce additional challenges. Federal law sets a baseline, but each state can impose its own restrictions, which may include stricter product regulations, licensing requirements, or outright bans.

This fragmented legal landscape forces businesses to juggle multiple compliance frameworks simultaneously, particularly those operating across state lines.

To thrive, CBD businesses must have a deep understanding of both federal guidelines and state-specific laws, and they must ensure compliance with the strict regulations governing their operations.

To navigate this regulatory landscape successfully, CBD businesses must understand the key federal laws that shape the industry. Below are some of the most important federal cannabis-related legislations affecting CBD operations.

The SAFE Banking Act

The Secure and Fair Enforcement (SAFE) Banking Act was introduced in 2019 to bridge the gap between federal regulations and the cannabis industry. The act aims to protect financial institutions that provide services to cannabis-related businesses from federal penalties.

The SAFE Banking Act would establish a safe harbor, allowing banks to work with state-legal cannabis businesses without risking federal prosecution. Although it has passed the U.S. House of Representatives multiple times, it has consistently stalled in the Senate due to political concerns and opposition.

The bill has not yet been passed into law​​​.

The SAFER Banking Act

Building upon the SAFE Banking Act, the Secure and Fair Enforcement Regulation (SAFER) Banking Act enhances protections for financial institutions, offering a clearer framework for engaging with state-legal cannabis businesses.

The SAFER Act provides safe harbor from criminal, civil, and administrative penalties for banks and insurers working with cannabis companies.

Unlike the SAFE Act, it also includes expanded protections for services like mortgage loans and insurance, helping to reduce legal risks for financial institutions​.

The 2018 Farm Bill

The 2018 Farm Bill was a watershed moment for the CBD industry, removing hemp-derived CBD from the Controlled Substances Act and legalizing hemp with a THC content of 0.3% or less at the federal level. This legislation enabled the rapid growth of the CBD market by distinguishing hemp from marijuana, which remains federally illegal.

The bill also gave the USDA oversight of hemp production, though states still retain significant control over the regulation of CBD within their borders​​.

Need help navigating the complex world of CBD banking regulations?
Connect with us today for expert guidance.

Regulatory Guidance for Financial Institutions

We’ve listed the different guidelines a financial institution must be aware of when dealing with CBD industries.

FinCEN Guidance

The Financial Crimes Enforcement Network (FinCEN) issued a critical guidance document in 2014 (FIN-2014-G001) tailored for financial institutions working with marijuana-related businesses, including those dealing with CBD.

This guidance plays a pivotal role in ensuring compliance with the Bank Secrecy Act (BSA). It outlines the necessary steps to prevent money laundering and other financial crimes. This includes conducting thorough customer due diligence, ongoing monitoring for suspicious activity, and filing suspicious activity reports (SARs) when needed.

Although initially focused on marijuana, this guidance also applies to CBD businesses due to the legal complexities surrounding THC content and its federal legality.

Federal Agencies' Joint Guidance

In addition to FinCEN's guidance, a collective directive from several federal agencies emphasizes the importance of comprehensive due diligence when serving cannabis-related businesses. These include:

  • Federal Reserve Board (FRB)

  • Office of the Comptroller of the Currency (OCC)

  • Federal Deposit Insurance Corporation (FDIC)

  • National Credit Union Administration (NCUA)

These guidelines instruct financial institutions to adopt rigorous risk management practices. This includes the need for continuous monitoring and reassessment of the legal status of cannabis-related businesses, which includes CBD companies.

The joint guidance aims to provide a framework that helps banks navigate the complex legal landscape while mitigating risks.

Risk Management Strategies

For financial institutions serving CBD businesses, managing risk is a multifaceted process that goes beyond basic compliance.

Effective risk management strategies include not only thorough customer due diligence and ongoing monitoring for suspicious activities but also adapting to evolving federal and state regulations.

Financial institutions must stay informed about changes in cannabis and CBD legislation, both at the federal and state levels, to maintain a compliant and secure banking relationship. This dynamic environment requires institutions to continually educate their teams and update their policies to align with the latest legal developments​ .

Challenges for CBD-Related Businesses (CRBs)


CBD businesses face a myriad of challenges, particularly when navigating the banking landscape due to the unique regulatory environment surrounding cannabis-related products. Below are the key compliance and banking challenges faced by CBD businesses.

Compliance Challenges

Dual-Track Regulatory System

CBD businesses operate under a dual-track system, where federal law often conflicts with state regulations.

This divergence creates legal uncertainties, forcing businesses to juggle multiple compliance frameworks across various states while ensuring they meet federal requirements. This complexity is particularly challenging for multi-state operators, who must comply with diverse state regulations while adhering to federal guidelines​​.

Proactively engaging with Canntella’s educational resources is invaluable in navigating such complexities.

Anti-Money Laundering (AML) and Know Your Customer (KYC) Compliance

AML and KYC regulations require CBD businesses to undergo extensive scrutiny by banks to prevent illegal financial activities such as money laundering.

Even if a business is fully compliant with state laws, the federal legal risks make banks hesitant to work with them. This creates significant operational hurdles in establishing and maintaining banking relationships​​.

Payment Processing and Cash Management

Accessing traditional payment processing services remains a significant challenge for CBD businesses.

Due to federal regulations, many financial institutions avoid working with CBD companies, leaving them to rely heavily on cash operations or third-party payment processors with higher fees. This situation exposes CBD businesses to higher risks of theft and financial crime​​.

Banking Challenges

Risk of Sudden Account Closures

CBD businesses often face sudden account closures from banks that become uncomfortable with the regulatory risks involved. Banks that initially provide services to these businesses may later reassess their risk exposure and decide to close the accounts without notice​​.

Difficulty Accessing Credit and Loans

Banks are hesitant to extend credit or loans to CBD businesses because of the risks associated with federal regulations. The perception of high risk prevents CBD companies from accessing the same financing opportunities that other businesses enjoy​​.

Limited Merchant Services and Payment Processing

Payment processors and credit card companies often refuse to work with CBD businesses due to their association with cannabis. This forces many CBD businesses to rely on cash-only transactions or third-party processors with higher fees, which can significantly impact operational efficiency​​.

Ready to take control of your CBD business's financial future? Let Canntella guide you through every regulatory challenge. Connect with Us

Economic Potential and Market Projections in the CBD Industry

The U.S. CBD market is at a pivotal moment in 2024, experiencing slowed growth largely due to regulatory uncertainty.

According to the Brightfield Group, sales have dropped to $3.4 billion in 2024 from $3.8 billion the previous year​​. This decline reflects broader economic pressures and consumer shifts toward lower-cost formats, such as gummies. The CBD industry is facing consolidation, with smaller companies exiting the market and top brands gaining more market share​.

The future of the CBD market hinges on federal regulatory developments, particularly whether the FDA provides formal guidance on CBD as a dietary supplement and food additive. Brightfield Group outlines two possible trajectories:

  • With Federal Regulation: If the FDA implements clear guidelines by this year, the CBD market could see a resurgence, reaching $11 billion by 2027. This growth would be driven by increased acceptance of CBD products by mainstream retailers, especially ingestibles like gummies and tinctures, which are currently considered too risky for mass distribution​​.

  • Without Federal Regulation: Should regulatory reforms stall, the market may struggle to grow, plateauing at around $7 billion by 2027. In this scenario, CBD businesses would continue to face significant challenges in expanding their distribution beyond specialty retailers and e-commerce​.

For banks, the complexities of the CBD industry offer both challenges and opportunities. As the market evolves, financial institutions that can navigate the legal uncertainties stand to benefit from increased deposits and lending opportunities.

However, the lack of federal regulation continues to be a barrier, making banks cautious about engaging with the CBD sector.

This reluctance, driven by legal and compliance risks, forces CBD businesses to seek out alternative financial solutions, such as credit unions and specialized payment processors that cater to high-risk industries​.

Despite the lack of clear federal guidelines, CBD businesses remain resilient, navigating a complex regulatory landscape. The future of the CBD market hinges on the evolving legal environment, and as businesses continue to adapt, support from experienced partners like Canntella becomes essential for overcoming these challenges.

How Canntella Supports CBD Businesses

While navigating the CBD industry's complex financial and regulatory environment, businesses often struggle with access to banking and maintaining compliance. Canntella plays a pivotal role in connecting businesses with the right financial and industry partners who specialize in cannabis-related businesses.

Expertise in Regulatory Challenges

Our network of industry experts offers advisory services to help CBD businesses stay up-to-date with evolving cannabis legislation. Our guidance on how to navigate the compliance landscape, particularly at the state level helps businesses reduce the risk of legal penalties and remain operationally stable.

We focus on understanding federal guidelines like FinCEN's regulatory requirements for cannabis-related businesses and ensuring adherence to state-specific rules​​.

Partnerships and Network Support

We connect CBD businesses with financial institutions that are equipped to handle the unique challenges of the cannabis industry.

By leveraging strategic partnerships with banks and credit unions that understand the legal complexities, we facilitate access to essential banking services.

Additionally, through a broad network of service providers, legal experts, and industry leaders, we help CBD businesses find the right resources for their financial and compliance needs​​.

Conclusion

Dealing with the complexities of CBD banking regulations isn’t easy.

From juggling state and federal laws to securing dependable financial services, CBD businesses face a lot of challenges that can be difficult to manage on their own.

That’s where Canntella steps in.

With a strong grasp of the industry’s unique needs, we offer personalized guidance and connect you to financial institutions that understand the CBD market. We help you tackle regulatory obstacles while positioning your business for growth.

Ready to move forward?

Let Canntella be your partner in navigating the ever-changing landscape of CBD banking and regulations. Reach out to us today and let’s work together to help your business thrive.

FAQs

How do CBD banking regulations impact the everyday operations of a CBD business?

CBD banking regulations impose stringent compliance requirements and limit access to financial services. Hence, businesses must navigate federal and state laws that vary widely and impact everything from payment processing to securing loans. This regulatory environment often leads to higher operational costs to ensure regular compliance.

How can CBD businesses adapt to potential changes in cannabis banking policy?

CBD businesses can stay ahead of changes in cannabis banking policy by following federal legislative developments, maintaining flexible financial strategies, and complying with current and potential future regulations. Canntella's team of experts can simplify your compliance and strategic process.

What is the current status of the SAFE and SAFER Banking Acts, and how do they impact CBD businesses?

As of 2024, the SAFE and SAFER Banking Acts have not yet passed into law, but they remain pivotal for the cannabis industry. These bills aim to provide legal protection for banks and credit unions working with cannabis-related businesses, including CBD companies. If passed, they could expand access to loans, credit lines, and payment processing services by reducing the legal risks financial institutions face when serving the CBD sector​​.

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