A potential obstacle blocking development of the industrial hemp industry was removed Tuesday when banking regulators confirmed the legitimate legal status of low-THC cannabis.

The move comes almost a year after Congress formally lifted stringent controls on the non-psychoactive variant of the hemp plant.

"This is really a big and important first step," said Kaelan Castetter, chief executive of CSG Hemp, a Binghamton-based processor.

Four federal agencies, in conjunction with the state bank regulators, issued a statement Tuesday that clarified the legal status of hemp growth and production under the Bank Secrecy Act for banks providing services to hemp-related businesses.

"Banks are no longer required to file suspicious activity reports (SAR) for customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations," the agencies said in a statement through the Federal Reserve Board.

Directive critical for industry growth

Despite Tuesday's action, Castetter said there is a long road ahead, because many financial institutions remain skittish about doing business with farms growing legal forms of cannabis and those processing the plants into cannabidiol (CBD).

Payment processors, in particular, have been reluctant to authorize electronic transfers for those in the industry, he said, causing those in the business to become creative to conduct transactions.

Those who will process electronic payments for the industry often charge legal cannabis purveyors up to three times the normal fee.

To avoid the excessive charges, CSG Hemp has turned to the old standard — checks.

New York's hemp boom

New York has been undergoing a hemp boom.

About 400 farms were licensed by the Department of Agriculture and Markets to grow industrial hemp this past growing season, and nearly 100 processors were authorized to produce byproducts from the plant.

The inability for businesses to conduct normal transactions has generally limited industry expansion.

U.S. Sen. Charles Schumer, D-N.Y., said Tuesday's action will open financing avenues that were otherwise unavailable to industrial hemp enterprises.

Banks will no longer have to file suspicious-activity reports when conducting business with those in the industrial hemp business, he said. 

"Now that the feds have issued to lenders updated guidance clarifying hemp’s legality as a crop," Schumer said, "this will significantly increase the likelihood that these businesses receive financial services, and help the industry continue growing."

The New York Bankers Association said it was pleased with the decision.

"Uncertainty about the legal status of hemp has left the industry with questions about reporting requirements," said Michael Smith, the association's president. "Banks take their obligations under the Bank Secrecy Act very seriously, and today’s regulatory action adds greater certainty to the compliance process.”

CBD gains in popularity

Industrial hemp is practically devoid of THC — the chemical that gets marijuana users high. These varieties of hemp contain less than 0.3% THC.

Industrial hemp growing and processing has flourished, as has the popularity of CBD oil for a variety of uses, despite questions about the benefits and effectiveness of treatment.

Anecdotal evidence indicates the oil derived plants containing low THC, the active ingredient in marijuana, can be used for insomnia, anxiety, and a variety of aches and pains.

Few, if any, scientific studies have backed the claims, and the FDA recently warned of the potential harmful effects of CBD.

Castetter said an informal network of growers and processors shares information about which banks have been willing to work with the industry and which have displayed reluctance.

He expects that as the industry gains wider acceptance as a legitimate business, more financial institutions will be open to transactions with the fledgling industry.

"If banks don't have the time or they don't want to spend the time to listen on a case-by-case basis, they'll just deny," he said.