When Dee Dee Taylor first started selling hemp-infused products and CBD oils at fairs and flea markets in 2016, she was nervous. A paralegal assistant at the time, Taylor was venturing from the “straight and narrow” path of running law firms to doing something even she saw as potentially risky.
But Taylor says the nerves she felt then were nowhere near as intimidating as some of the challenges she faces today as the full-time operator of a hemp product shop in Louisville.
Earlier this spring, Elavon Merchant Services — a subsidiary of U.S. Bank that provided credit card processing capabilities for a large number of CBD sellers — announced it would not accept any new applications for CBD merchant accounts and would cut ties with all of its existing CBD business relationships by May 15. Taylor’s store, 502 Hemp, was one of them.
“In April when they sent the news out to everybody that was like ‘Oh my gosh, what am I going to do?’” Taylor said. “I felt like I was scrambling because you can’t have a retail store and not have credit card processing. You just can’t.”
Taylor opened 502 Hemp in October 2018 and said she has had more obstacles to her business since the 2018 Farm Bill made hemp legal again than she did three years ago.
In 2016, Taylor’s husband John was making hemp products at his company, Commonwealth Extracts, under Kentucky’s government-approved pilot program, made possible by the 2014 Farm Bill.
“I did not have hemp in my name and I did not have CBD in my name, so I really was able to kind of fly under the radar,” Taylor said about selling her husband’s products. “I used PayPal at that time and that was how I kind of got my little following.”
This past December, the 2018 Farm Bill made hemp fully legal to grow in the U.S. for the first time since the plant was made illegal by the Controlled Substances Act of 1970. This also meant hemp products with less than 0.3 percent THC (the compound in cannabis plants that gets you high) like CBD oil were legal to sell.
Still, Taylor has struggled to find consistent service from banks willing to provide her store with reasonable credit card processing fees and e-commerce capabilities.
The reasons why are precisely to the contrary of what many hemp farmers and sellers thought the new legislation would provide: clarity.
Classifying And Regulating Hemp
Cannibidiol, more commonly known as CBD, is a compound extracted from the hemp plant that is commonly used to relieve anxiety, migraines, seizures, arthritis, skin conditions and more — though there’s not much scientific evidence to support those claims. Unlike marijuana, CBD will not get you high.
While people like Taylor’s customers swear by CBD for the relief it provides them, the complicated history of CBD’s legality is what gives banks pause to fully dive into providing financial services to producers and sellers.
Before the 2018 Farm Bill was passed, hemp was considered a Schedule I drug alongside heroin, marijuana and LSD among others. Since its declassification as a Schedule I drug, hemp has moved under the purview of the Food and Drug Administration (FDA) which has control to define the rules and regulations for ingestible drugs like CBD oil and other topical products such as hemp-infused lotions.
Tyler Mark, an agricultural economist at the University of Kentucky, said banks are largely hesitant to loan money to companies serving as industrial hemp suppliers because there are fears the regulation could change at any time.
“[The FDA] could, at any point in time, come down and say that any [hemp product] that is ingestible or topical is now a Schedule I drug,” Mark said. “So if they say that, now the bank would have actually been loaning money to a company that was selling an illegal drug.”
In addition to the FDA’s control, banks also have to understand how hemp will be regulated before issuing loans and services.
States have the option to create their own structured regulatory plans for hemp to be approved by the U.S. Department of Agriculture or apply for licenses to comply with the federal program the USDA is tasked with creating.
Kentucky Agriculture Commissioner Ryan Quarles has been outspoken and supportive of the hemp industry and immediately applied for the federal approval of the state’s hemp program when the farm bill was passed in December.
Mark said the USDA regulations are set to be finished this fall, according to the Farm Bill.
On April 2, Sen. Majority Leader Mitch McConnell and Oregon Democratic Sen. Ron Wyden sent letters to federal banking and regulatory bodies asking for clarifications on hemp’s legality to ease the concerns of financial providers getting involved in the hemp industry. The senators wrote they had “consistently heard from lawful hemp farmers and producers about the lack of access to financial products.”
“While some banks have agreed to offer financial services to the growing hemp industry, many banks have not due to confusion over the legal status of hemp,” the senators wrote. “However, as hemp is no longer a controlled substance, banks should feel secure in engaging with this industry.”
The other contingents that could be largely affected by regulatory decisions are the many investors who have bet on the success of the future of Kentucky grown hemp.
“The hard part is that there’s a lot of investment going in into a lot of these companies,” Mark said. “So if FDA doesn’t come out with some rules and regs in kind of short order, how then does it impact those individuals that made investments in that industry? That’s really an unknown answer right now.”
‘Everywhere you drive, there are signs of CBD for sale’
The precarious regulatory status of CBD coupled with the lack of medical research on its possible health benefits has not deterred producers or consumers from buying into its potential.
Despite difficulties securing bank loans for access to benefits like crop insurance, the driving force behind farmers’ push to grow hemp in Kentucky is the rapidly growing demand for the plant’s perceived benefits.
“Obviously, there is quite a bit of demand,” Mark said. “I mean, you’ve got fairly large retailers looking at how they can get these types of products into their stores, and also, it almost seems like everywhere you drive there are signs of CBD for sale.”
Alyssa Erickson is the co-founder of several hemp advocacy groups in the state, and helped establish the United Hemp Industries which is an industrial hemp processing contractor in Lexington. Erickson has lobbied for hemp farmers’ banking rights in Congress and says the struggles farmers have faced to establish financial security to grow hemp are undeniable.
“Even though the Farm Bill passed in December, you think that would have cleared the way for financial support and banking and credit card processing and all that, but that has not been the case” Erickson said. “We’re hoping that [Congress] will pass specific legislation, not that they should have to necessarily, but just to clarify on the federal level that hemp is a legal crop and the industry should be supported with financial services like banking.”
Kentucky has outpaced other large producer states like Colorado in licensed acres to grow hemp, and banks view the land as an asset when negotiating to lend money to hemp farmers.
“What seems to be happening is that banks are willing to loan to farmers if they have collateral in the land to grow their crop,” Mark said. “So they’re not really loaning on the crop itself.”
Taylor said the paranoia from banks and credit card companies to do business with hemp shops has been a consistent complication for her to deal with.
Three years before she opened 502 Hemp, Taylor saw a preview of the difficulties when PNC Bank shut down all of her family’s personal accounts.
“Back in 2015, my husband and his partner were going to get a loan through PNC, and at first it was all great,” Taylor said. “But then all of a sudden, they shut everything down.”
After 20 years of personal banking with PNC, Taylor had to go to a credit union for her personal finance. Once she opened 502 Hemp, she knew she would have to think of ways to clear the hurdles of not having credit card processing.
When she was worried about credit card capabilities being cut off, Taylor said she offered discounts to her customers who paid in cash or wrote checks. She said some credit card companies have approached her about business, but as “a hemp person,” are charging at rates of 6.95 percent, a 30-cent swipe fee, a $200 monthly “look-at fee” to ensure compliance with regulations and a $250 application fee as well.
“For a small business, you can’t work that way,” she said.
Since being kicked off by Elavon, Taylor said BB&T has been providing her credit card processing but not e-commerce. For that, she has to take online payments from customers over the phone.
With the official regulatory timeline unclear and the ability to offer her customers a convenient payment method always one call away from being cancelled, Taylor says she remains positive because of the value she sees in her products and the unwavering demand for them.
“The demand is overwhelmingly positive,” she said. “I think we’ve always known that we needed this plant, and I think people are just trying to get back more to the natural remedies. It’s just proven itself over and over and over again that it does work.”
Even though it has made her job complicated, Taylor says she understands the reluctance of banks and financial service providers to fully embrace CBD’s booming potential.
“So what if the FDA comes in and says, ‘Well, you can’t use CBD in anything.’ OK, now what?” Taylor said. “I get the fear, I do. Because I have it myself.”