See CQ 2019-283 for our most recent guidance regarding SAR-filing responsibilities for hemp/CBD customers.

Yes, we recommend filing a SAR in relation to a transaction to purchase hemp seed, unless your customer is an institution of higher learning or a state agricultural department that is growing hemp for research purposes. While Illinois has begun issuing licenses for hemp cultivation, Illinois’ licensing program has not yet been approved by the U.S. Department of Agriculture (USDA), and producing hemp without a USDA-approved license is “unlawful” under federal law.

With the passage of the federal Agriculture Improvement Act of 2018 (the 2018 Farm Bill), hemp no longer is an illegal controlled substance under the federal Controlled Substances Act. Similarly, Illinois enacted legislation in 2018 (the Industrial Hemp Act) that removed industrial hemp from the state’s general prohibition against manufacturing, delivering or possessing “cannabis.” Under both Illinois and federal law, “hemp” or “industrial hemp” means “the plant Cannabis sativa L. and any part of that plant . . . with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

However, the federal 2018 Farm Bill also provides that “it shall be unlawful to produce hemp” without a license issued by the USDA or by a state that has been approved to issue licenses by the USDA. While the Illinois Department of Agriculture has already begun issuing hemp cultivation licenses, to our knowledge the USDA has not approved Illinois’ hemp licensing program to date. In fact, the USDA’s website states that it will not review or approve any state hemp programs until it finalizes its own regulations later in 2019 or 2020. Accordingly, the USDA’s position is that during the 2019 planting season, hemp growers may obtain licenses only under a 2014 Farm Bill program, such as Illinois’ Industrial Hemp Pilot Program — which permits only institutions of higher learning or state agricultural departments to grow hemp — and such hemp must be grown exclusively for research purposes.

The SAR reporting rules apply to transactions of over $5,000 that involve “funds derived from illegal activities . . . as part of a plan to violate or evade any Federal law or regulation.” Your customer may have a hemp cultivation license issued by Illinois, but the USDA has not approved Illinois’ licensing program (except with respect to hemp grown by institutions of higher learning or the Illinois Department of Agriculture itself). Consequently, your customer’s hemp production activities are “unlawful” for purposes of federal law, and we believe that the hemp seed purchase is an “illegal activity” necessitating a SAR filing if the transaction exceeds the $5,000 threshold.

We note that this customer does not pose the same risks as a cannabis producer or distributor operating under the Illinois medical cannabis law. In this case, your customer is not engaged in the production of an illegal controlled substance, assuming that the hemp it grows does not exceed the 0.3% THC threshold set by both federal and Illinois law. However, until the USDA approves Illinois’ industrial hemp licensing program, we recommend filing SARs when the customer’s transactions exceed the $5,000 SAR filing threshold.

For resources related to our guidance, please see:

• Illinois Industrial Hemp Pilot Program, 720 ILCS 550/15.2(a)(1) (“Pursuant to Section 7606 of the federal Agricultural Act of 2014, an institution of higher education or the Department of Agriculture may grow or cultivate industrial hemp if . . . the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research.”)

• Controlled Substances Act, 21 USC 802(16) (“(A) Subject to subparagraph (B), the term ‘marihuana’ means all parts of the plant Cannabis sativa L. . . . (B) The term ‘marihuana’ does not include

(i) hemp, as defined in section 1639o of Title 7; or

(ii) the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.”)

• Agriculture Marketing Act of 1946, 7 USC 1639o(1) (“The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”)

• Illinois Industrial Hemp Act, 505 ILCS 89/5 (“‘Industrial hemp’ means the plant Cannabis sativa L. and any part of that plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis that has been cultivated under a license issued under this Act or is otherwise lawfully present in this State, and includes any intermediate or finished product made or derived from industrial hemp.”)

• Agricultural Marketing Act of 1946, 7 USC 1639p(a)(1) (“A State or Indian tribe desiring to have primary regulatory authority over the production of hemp in the State or territory of the Indian tribe shall submit to the Secretary, through the State department of agriculture (in consultation with the Governor and chief law enforcement officer of the State) or the Tribal government, as applicable, a plan under which the State or Indian tribe monitors and regulates that production as described in paragraph (2).”)

• Agriculture Marketing Act of 1946, 7 USC 1639q(c)(1) (“In the case of a State or Indian tribe for which a State or Tribal plan is not approved under section 1639p of this title, it shall be unlawful to produce hemp in that State or the territory of that Indian tribe without a license issued by the Secretary under subsection (b).”)

• USDA website, Hemp Production Program Questions and Answers (“May state or Tribal Nations submit plans now to the USDA for review and approval? It is USDA’s intention to issue regulations in the Fall of 2019 to accommodate the 2020 planting season. Should a state or Tribal nation submit a plan before that time, USDA will not review or approve such plan until regulations have been implemented.”)

• USDA website, Hemp Production Program (“For the 2019 planting season, the 2018 Farm Bill provides that States, Tribes, and institutions of higher education can continue operating under authorities of the 2014 Farm Bill. USDA provided additional guidance to these programs in the August 2016 multi-agency Statement of Principles on Industrial Hemp (FR 53395). The 2018 Farm Bill extension of the 2014 authority expires 12 months after USDA has established the plan and regulations required under the 2018 Farm Bill.”)

• Agriculture Marketing Act of 1946, 7 USC 1639q(c)(3) (“Reporting to Attorney General In the case of a State or Indian tribe covered by paragraph (1), the Secretary shall report the production of hemp without a license issued by the Secretary under subsection (b) to the Attorney General.”)

• Illinois Department of Agriculture website, IDOA Receives Over 350 Hemp Applications (May 1, 2019) (Indicates that the Illinois Department of Agriculture had issued 97 industrial hemp cultivation licenses as of May 1, 2019.)

• FinCEN SAR Rules, 31 CFR 1020.320(a)(2) (“A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through the bank, it involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that (i) The transaction involves funds derived from illegal activities . . . as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation; . . . ”)