Posts tagged ‘USDA’

State Establishes Framework for Hemp Related Products

Late yesterday evening, we received word that the Governor had signed important legislation which creates a state-level framework for the expanded production of hemp and authorizes products derived from hemp to be legally sold on the state level. The bill takes effect on March 8, 2020.

For credit unions, the bill provides a further comfort level when it comes to opening accounts not just for hemp manufacturers, but for businesses which specialize in selling hemp-related products in the more general sense. The distinction is a key one because, to its proponents, hemp can be used in just about everything ranging from nutritional supplements to hair and beauty products.

Along with the bill signing, the Governor announced plans to hold a “summit” in January to discuss issues related to hemp and marijuana.

The bill is an important step in the right direction. As I explained in this blog, the USDA recently came out with temporary regulations establishing a framework for the federal approval of hemp manufacturing in states where it is already legal. As with so many other developments in this area, the state’s legislation brings to the forefront continuing tension with federal law. The 2018 legislation which removed hemp as a schedule I drug explicitly permitted the US Food and Drug Administration to make an independent determination regarding the proper regulation of hemp-derived products. To date, the agency has not indicated what its ultimate position on this issue will be. By establishing a state-level framework, the legislation brings forth the authority of the US FDA to preempt state law relating to this industry. The state is anticipating this concern by mandating that all the products and individuals licensed pursuant to this framework be New York entities. Whether or not this is enough to avoid federal scrutiny remains to be seen.

December 10, 2019 at 9:09 am Leave a comment

Hemp Regulations Bring Banking Issues to the Forefront

On October 29th, the USDA issued interim final rules providing a framework for the legal protection and distribution of hemp in states that choose to legalize it. The long awaited regulations bring about a new stage in what promises to be a phonetic period for compliance innovation as financial institutions begin to provide banking services for products related to marijuana.

What exactly is being legalized?

Up until recently, the distinction between hemp and marijuana did not matter. Both were classified as Schedule I drugs under the Controlled Substances Act. In the 2018 Farm Bill, Congress declassified hemp and allowed it to be produced in states choosing to legalize it. The key difference between hemp and cannabis sativa is the level of THC contained in the leaves of these closely related plants. A THC level in excess of .03 is considered marijuana, while anything below that is considered hemp.

Last week’s regulations provide the framework that states like New York need to start developing the industry consistent with the federal guidelines. Many of us who have followed the issue closely have been surprised that the USDA did not move more quickly to promulgate the proposed regulations. The USDA got the message because it took the unusual step of issuing interim proposed final regulations. This means that there is now a legal framework for states to begin submitting their hemp regulation plans, even as the USDA accepts comments on these proposed regulations. Remember, we are dealing with a crop, and farmers need time to plan in advance of the growing season.

We should also expect a flood of additional guidance from banking regulators now that the USDA has taken this important step. The NCUA issued this initial guidance in August 2019, in which it promised to “issue additional guidance” once the USDA’s regulations are finalized. NCUA should start issuing that additional guidance even though it can still be modified.

On the state level, New York has advocated for financial institutions to provide financing for hemp farming since 2014. The next step is for the state to issue a proposed plan to the USDA. One issue which I am researching and will update you on in a future blog is whether the state has to pass legislation legalizing hemp production beyond the 2014 pilot program.

For those of you who might be interested in providing banking services for hemp producers and hemp related businesses, now is the time to finalize your compliance plans. These plans will be more difficult to implement on an ongoing basis than they will be to put down on paper. For example, since the distinction between hemp and marijuana comes down to the THC level, it is absolutely crucial that any business you are dealing with have appropriate procedures in place to monitor its plants and dispose of marijuana.

Finally, even if you have no desire to get involved with this business, it will impact your credit union. I expect your typical community farmers market to become a hotbed of local producers using hemp as a key ingredient in their products. When these local businesses come to open an account, what procedures are you going to have in place to ensure that their products are legal? These and other questions promise to make this a subject of legal and compliance debate for years to come.

November 5, 2019 at 9:13 am 4 comments

Another Fly in the Hydrofracking Ointment

The debate over whether or not to expand natural gas drilling in New York’s Southern Tier took an unexpected turn this week and it could have implications for credit unions providing mortgages with natural gas leases nationwide. 

As I have talked about previously, credit unions in New York have begun to analyze the potential implications of high powered hydraulic fracturing in the state’s Southern Tier.  The technique generally sends a high pressure mixture of sand, chemicals and water down wells to smash against rock formations.  The resulting pores allow natural gas to escape.  The improved techniques have opened a large swath of land to natural gas exploration.  However, the question posed by credit unions, and increasingly banks, is whether such drilling comports with secondary market standards.  The ultimate question is will both Fannie and Freddie force credit unions to repurchase mortgages where the land is subject to hydraulic fracturing if it is discovered that the technique poses environmental hazards?  To date, no one can point to a single example of Fannie and Freddie taking such an action, which is particularly important since Pennsylvania already authorizes such drilling.  The bad news is that Fannie and Freddie refuse to give unequivocal assurances that they won’t take such action in the future. 

The New York Times reported on Sunday that the U.S. Department of Agriculture, which oversees the rural housing program, is considering requiring an extensive federal environmental review before authorizing future mortgage assistance to people with leases for oil and gas drilling.  The paper reports that the New York administrator of the housing program has already informed staff that it will not be providing any funding for mortgages with gas leases.  In addition, if the review process goes forward, it would clearly impact states such as Texas and Louisiana, where USDA funding for housing is more commonly used.  There is absolutely nothing official yet, but it is highly doubtful that Fannie and Freddie wouldn’t take a similar position if the USDA concludes that gas drilling leases for hydro fracking trigger federal environmental review requirements.  This is one to keep an eye on.

March 21, 2012 at 7:24 am 2 comments

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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