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Cracking the Legal Cannabis Code: Marijuana, Hemp and CBD

Terri Luttrell, CAMS-Audit, CFCS
April 2, 2019
Read Time: 0 min

The cannabis industry can be hazy for financial professionals. Add the legislative issues facing the U.S. federal and state governments, and it can become highly overwhelming. Let us start with a background recap to roll up the facts, so they are more easily digestible.

The terms cannabis, marijuana, and hemp are often mistakenly used interchangeably but are considerably different. Marijuana and hemp are both primary species of the cannabis plant, and cannabinoids (CBD) are derived from hemp. So, what’s the difference?

  • Marijuana is used for both recreational and medical uses and has a 10-40% content of tetrahydrocannabinol (THC), the psychoactive component that gets the user high.
  • Hemp, on the other hand, must have .3% or less THC not to be considered marijuana and is primarily used for industrial purposes, such as textiles, building materials, fuel, and plastics.
  • The fastest growing global use of hemp is in THC-free CBD products, particularly oils and food/beverage infusions. Hemp or CBD does not get the user high.

Marijuana remains wholly illegal at the federal level as a Schedule 1 substance, ranking the plant at the same level as heroin and above cocaine and methamphetamine. However, this hasn’t stopped 33 states as well as Washington, D.C., Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands, from legalizing medical marijuana. It is legal in 10 of those states for recreational use and decriminalized in another 10 states.

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Hemp, and subsequently CBD, have always been in a legal grey area. In December 2018, President Trump signed the Agriculture Improvement Act of 2018 (commonly referred to as the 2018 Farm Bill) into law. Many financial institutions believe this new regulation legalized hemp and opened the door to safely provide financial services to the hemp industry. However, it would be misleading to claim that it completely legalized hemp and CBD. While hemp was removed from the Controlled Substances Act (CSA), no longer making it an illegal substance at the federal level, there are some stipulations:

  • It must contain less than .3% THC.
  • Persons wishing to cultivate and grow hemp must secure a license either through their state or federally-run programs.
  • CBD and its byproducts that have not been approved by the FDA remain a Schedule 1 substance under federal law (to date, only one product has been approved – Epidiolex)
  • If a CBD product can be proven to contain no THC and therefore consists solely of parts of the cannabis plant excluded from the CSA definition of marijuana, it would be arguably legal. (According to the DEA, this is nearly impossible and not financially practical for growers.)

A financial institution wanting to cast the Farm Bill’s safety net for banking hemp or CBD must ensure complete knowledge of their customer’s business and product(s), including the chemical THC composition, and the laws of the states where the customer is conducting business.

Whether your financial institution is grappling with your policy around banking marijuana-related businesses or banking hemp/CBD products, the risks are still very real. Know the risks, weigh your decisions carefully, inform your Board, and most importantly, know your customers. With thoroughly designed policies and procedures around customer due diligence and suspicious activity monitoring, your successes may be just as real if you move forward with banking this high-growth industry.


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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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