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As cannabis bill advances in Congress, banks see chance to improve ag lending

As agriculture producers face headwinds from tariffs and severe weather, some are turning to hemp and marijuana crops to help offset downturns. Lending to these farmers can be risky for banks since marijuana is still illegal at the federal level, but a bill making its way through Congress could change that.

The House of Representatives passed the SAFE Banking Act with a vote of 321-103 on Sept. 25. The act would provide regulatory relief to banks, lenders and insurers that provide services to cannabis-related businesses. For community banks, this could open opportunities to lend to growers and provide some relief from pressures on agriculture loans, experts said.

Marijuana is a growing business in states where it is legal. According to the industry news service Marijuana Business Daily, medical marijuana sales in Illinois totaled $24 million in August. The drug will become legal for recreational use in 2020. Illinois is one of the largest corn and soybean-producing states and has 66 banks with more than $50 million in total agriculture loans on their books.

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There are limits to how many dispensaries and growers can operate in Illinois, said Ben Jackson, vice president of government relations for the Illinois Bankers Association. "You are not going to have a medical dispensary or a recreational dispensary on every corner of the block," he said in an interview.

Hemp, on the other hand, will have a much bigger impact on the state. Jackson said farmers are interested in industrial hemp but are awaiting guidance from the USDA based on the 2018 Farm Bill, which legalized the crop.

Farmers have been expanding acreage for hemp farming, said Angela Lucas, a managing partner at Sterling Compliance LLC who specializes in the cannabis industry.

"Certainly within the agricultural community and existing farmers there is a lot of interest, particularly within the hemp industry, mainly because that can be more of an outdoor crop," said Ralf Kaiser, senior vice president with the cannabis compliance firm Integrated Compliance Solutions.

"With some of the challenges that exist within the agricultural community with other crops, the margins that come on the hemp side of it make it a fairly lucrative crop," Kaiser said in an interview.

As traditional farmers begin to grow more hemp, banks that already have accounts with these farmers can be put in a difficult position.

"They've switched from being a farmer of one type of crop to all of a sudden a cannabis-related business," Kaiser explained. Banks would be forced to put in additional policies and procedures for these existing customers, Kaiser said.

Due to these concerns, banks have not caught up to demand from the industry, according to Lucas. She estimates that only 40 to 60 banks are actively banking cannabis businesses.

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Serving the cannabis industry can be quite lucrative for banks willing to take on the risk, however.

"The necessity for monthly monitoring of such accounts means the bank can charge monthly monitoring fees, and they can be substantial," said Kaiser. "Many of these entities are generating an enormous amount of deposit activity, so that just lends itself to being a very lucrative business."

It may still be difficult for banks to take on agriculture loans from cannabis growers even if the SAFE Banking Act passes. Banks may be more willing to take on equipment or real estate loans than loans to growers, said Katrina Skinner, President and General Counsel of Safe Harbor Services, a credit union service organization.

"If a bank were to confiscate [marijuana] or they wanted it as security, they couldn't turn around and sell it, because they're not licensed cannabis businesses," she said in an interview.

Whether the bill will pass the Senate is unclear, but the industry is watching closely.

"Amongst agricultural bankers in Illinois, there's a high level of interest in working with not only cannabis businesses, but hemp growers and other hemp producers as well, and we think that this is definitely a growing area of agricultural banking," the Illinois Bankers Association's Jackson said. "But there's a lot of things up in the air right now that need to be settled on."

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