The USDA Releases Guidelines for Federal Loans for the Hemp Industry

A recent memo provides clarity for lenders. Since hemp was federally legalized under the 2018 Farm Bill, it is now considered an agricultural commodity like any other crop. The US Department of Agriculture (USDA) has even taken several steps to sync the market with its various programs and services. The department’s new memo, released early April 2020 to state and county offices provides clarity on how to process direct or guaranteed loan applications for hemp producers. Many believe the new guidelines will assist the hemp sector’s financial interests in the long run.

The USDA Should Treat Hemp Like Any Other Commodity

The memo is a signal from the USDA that it does intend to treat hemp like any other agricultural commodity, to the extent that it can anyways. This recently offers updated guidance, revised from last October, on how lenders can offer direct and guaranteed federal loans to hemp producers.

Starting this season, the Farm Service Agency (FSA) will be able to consider applications to grow hemp “beyond the provisions of the 2014 pilot program.” Hemp producers must meet specific requirements from the 2018 Farm Bill in order to be approved for a loan. Among those requirements are that hemp producers must be licensed under a State or Tribal plan approved by USDA, or if a producer resides in a State or Tribe that does not have a USDA-approved plan, the producer must be licensed directly by USDA.

Certain Requirements Must Be Met

The FSA must have a copy of the borrower’s current license before approving a direct loan. Cultivators who are approved to produce hemp under the 2014 Farm Bill will continue to be eligible for FSA loan servicing assistance. States and tribes, or a state’s department of agriculture, will be responsible for ensuring that non-compliant hemp (that is, hemp exceeding acceptable THC levels) is destroyed in accordance with state, tribal, and federal laws. The FSA will not pay for that disposal, and “will not cover a lender’s advance to the borrower to cover the cost as part of any guaranteed loan loss claim”.

Why Are USDA Guidelines Now Needed for the Hemp industry?

Hemp will be considered like any other “borrower produced commodity”, if the hemp was produced under a license authorized by the 2014 or 2018 farm bills, and provided the crop was not abandoned or destroyed. It has been noted that the FSA primarily works with new farmers – those with relatively small operations – and that many hemp growers fit this description. All hemp growers, like all agricultural producers, need access to capital and credit so that they can cover operating expenses, purchase equipment, or enlarge their operations. FSA loans will play a key role in the now-legal industry by making capital and credit available to growers who might not otherwise have access to a conventional lender.

Of course, access to a bank account is yet another requirement to receive a loan, and not all banks are fully willing to cooperate with the hemp industry yet despite its federal legalization.