Chairman and Chief Executive Officer, Customers Bank
As part of the 2018 Farm Bill, industrial hemp was legalized on the federal level. Industrial hemp and hemp-derived cannabidiol (CBD) products are not the same as, nor should they be confused with marijuana. Marijuana remains an illegal and controlled substance in our nation. Hemp and hemp-derived CDB are also not related to medicinal marijuana, which has been legalized in thirty-three states but remains on the federal schedule 1 list of drugs with a high potential for abuse.
With certain limitations and additional requirements, the passing of the Farm Bill has made it legal for banking institutions to provide services to hemp-related businesses, as well as hemp-derived CBD product companies. As a newly legalized market, industrial hemp and hemp-derived CBD products represent exactly the types of opportunities that banking leaders should be pursuing. While remaining focused on the legalities and enhanced regulatory requirements placed upon this industry, it represents the type of opportunities that Customers Bank continues to pursue due to the potential economic growth throughout the region and nationally.
According to a published research report by Fior Markets, the global industrial hemp market is expected to reach $14.6 billion by 2026, and according to a June 2019 article in Hemp Industry Daily, the U.S. CBD market alone is projected to reach $7 billion in 2023.
Before the 2018 Farm Bill passed, banks could not serve farmers growing hemp or firms involved with hemp-derived CBD products. Even where hemp and hemp-derived CBD products were legal at the state level, businesses offering associated products were effectively barred from the financial sector, even for basic banking services. Most of these companies either operated as cash-only businesses or paid high-risk fees for financial services, and oftentimes, those services could go away overnight, without notice, leaving these businesses to struggle with payment processing and other issues.
Industrial hemp and hemp-derived CBD businesses are modern farming and pharmaceutical-grade processing businesses. While this sector does require additional paperwork and monitoring, it is no different than any other industry and should be provided the same access to modern banking services as other businesses.
The banking industry, as a whole, tends to be very cautious and slow-moving in regard to new markets. This is rightly so, as banking leaders have to carefully explore new markets, conduct due diligence and assess risk.
Because newly created markets necessarily involve disproportionate uncertainty, many banks stay on the sidelines awaiting a proven-successful approach to emerge. This is the wrong strategy and involves excess risk aversion. This slow-moving, cautious, risk-averse tendency creates tremendous market opportunities for industry leaders that are nimble and able to quickly adapt to market changes.
Banks have long observed that persuading businesses to change banking institutions is difficult, both for the bank and for the business. This observation underscores the necessity of competing early. According to a J.D. Power study, approximately 20% of fast-growing small businesses and only 5% of other small businesses change banks each year. Financial institutions that are slow to establish relationships with these new, currently unbanked, businesses will struggle to gain a meaningful foothold in this sector, even if those institutions end up offering better products.
For Customers Bank, offering commercial deposit products and services to hemp-related businesses and hemp-derived CBD product companies is a smart decision for the business, our communities and the region’s economic growth. By providing commercial banking services to hemp-related businesses based in Pennsylvania and New York, Customers Bank is helping these fledgling companies gain access to knowledgeable business bankers. These business bankers, who understand hemp-related businesses and the hemp-derived CBD products industry, can recommend appropriate financial products and services to grow sustainable businesses that address legitimate market needs.
As hemp-related businesses scale in size, the benefits to the surrounding communities will be far-reaching. These companies not only will generate new job growth in the community, they will also produce positive upstream effects for their suppliers and service-providers. Innovative banking leaders need to create appropriate internal policies and procedures to enable their institutions to provide financial services to legal hemp-related businesses and the hemp-derived CBD products sector.