Banking on industrial hemp

by Dan Dickson
Source: bizlex.com

Industrial hemp is getting a lot of ink, air time and social media attention in Kentucky lately.

In the second year of the state’s hemp pilot program, 121 farmers were selected to grow a total of 1,740 acres of the crop in demonstration projects that industry leaders hope will prove the potential of hemp. But is hemp a good investment? Should banks and individual investors be sinking money into it?

“We’re absolutely excited about it,” said Debra Stamper, counsel for the Kentucky Bankers Association. “Any new industry is great for the economy, which means it’s great for the banks.”

Stamper said she’s impressed by the wide range of products produced from hemp, everything from clothing, oils and personal care products to automobile parts and food.
“Kentucky has such a rich history of hemp production for products,” she said. “It could help farmers who used to grow tobacco, especially smaller farms.”

Bank loans for Kentucky agriculture have fallen off in recent years, according to the association.

While hemp might provide a boost, Stamper said she thinks Kentucky bankers need to be reassured that investing in hemp is safe. The federal farm bill allows certain states to operate hemp pilot programs.

“I would argue quite strongly that that allows Kentucky banks, any bank, in states where hemp is legal, to hold money and make loans for hemp projects authorized by the pilot programs,” said Jonathan Miller, of Lexington’s Frost Brown Todd Attorneys and advisor to the Kentucky Hemp Industry Council.

Some Kentucky bankers recently met with hemp industry leaders and Agriculture Commissioner James Comer. They talked about a hemp education curve. Bankers must understand the differences between a legal hemp crop and an illegal marijuana crop. Officials discussed with bankers how to verify the people who approach them for loans for hemp projects, “so they’re not hesitant about getting involved in any of those businesses,” said Stamper.

Still, some bankers worry getting involved in hemp might bring the U.S. Drug Enforcement Administration to their door or lead to a crackdown from the Federal Deposit Insurance Corporation.

“That is something we’re working through right now,” Miller acknowledged.
But, Miller said, from an investment standpoint, now is the time to to get in on the ground floor of the state’s hemp industry.

“Given our history of world leadership in hemp a century ago, our soil and climate and the political support for it today, I would think investing in Kentucky hemp would be a wise bet,” he said.

Large and small banks have shown interest in hemp. Smaller banks might be in the best position to get into the business since they’re experienced with loaning to small farmers and business owners.

“Sometimes products and services make more sense for community banks than for larger banks,” said Stamper. “Sometimes it’s the other way around.”

Michael Lewis, COO of Lexington-based Freedom Seed & Feed, said he has been traveling frequently to New York in recent months to discuss hemp with potential investors. He’ll be growing 45 acres of the crop in this year’s pilot program. Lewis said he thinks hemp can be a moneymaker.

“And a lot of others do too,” said Lewis, who was a featured speaker in late May at
the Markham MicroCap Conference in New York City. It is dedicated to providing a forum for companies with less than $500 million in market capitalization to network with the investment community.

“We’re raising capital to expand our infrastructure,” Lewis said. “We have partnerships with an international pharmaceutical company and an international clothing manufacturer.”

Lewis’ message to bankers is clear. “It’s a valid industry. Look, every other industrial nation in the world is producing hemp — China, Russia, South Korea are leaders. This isn’t a fly-by- night money grab. There are real businesses and real business people in the industry.”

Alice Menendez took a break from planting this year’s corn crop on her Winchester farm to discuss hemp. She’ll be growing 10 acres of it this year. The seeds will be purchased for processing by a company called Dr. Bonner’s Magic Soaps.

“People are really excited about the business potential. There’s a lot of energy among businesses that are profitable [with it] elsewhere. There’s no reason to believe we wouldn’t be profitable here.”

Industrial Hemp Facts
• Industrial hemp is a variety of Cannabis sativa, part of the same plant species as marijuana, but genetically and chemically different.

• More than 25,000 different products can be produced from hemp.

• Products made from hemp include fabrics, paper, carpeting, home furnishings, construction materials, foods and beverages, body care products, cosmetics, automobile parts, industrial oils, nutritional supplements and pharmaceuticals.

• Pioneers in Kentucky first grew hemp in 1775, and the state was once the nation’s leading producer. A federal law passed in 1938 banned the production of cannabis, including hemp. Kentucky is now working with the federal government to regain hemp production status.