Member Article

The United States Department of Agriculture’s (USDA) Farm Service Agency (FSA) issued revised guidance to its state and county offices on making and processing loans to hemp producers. Because hemp was federally legalized under the 2018 Farm Bill, the revised guidance is part of the USDA’s overall efforts to treat hemp as it would any other agricultural commodity with respect to available programs and services typically afforded to such commodities. The revised guidance replaces earlier guidance that was issued on October 31, 2019, and is intended to provide further clarity on processing direct and/or guaranteed loan applications for hemp producers.

To be eligible for an FSA loan, hemp producers are required to be licensed under a state or tribal plan approved by the USDA, or directly by the USDA itself (if a state or tribal plan is not available). Before receiving loan assistance, an approved hemp producer must provide sufficient information for a lender to determine that the producer has the financial resources to repay the loan. Such determination generally would be based on the contract to grow/purchase that includes the following information:

• Provide for termination based on objective “for cause” criteria only;
• Require that the grower be notified of specific reasons for cancellation;
• Provide assurance of the producer’s opportunity to generate enough income to develop a cash flow budget and repay the loan; and
• Be issued by a purchaser that has a reasonable and realistic prospect of fulfilling the contract.
  
  

Generally, FSA and guaranteed lenders should ensure (1) that all planned hemp acreage (by the producer) matches the acreage reported in FSA-578 (i.e., the crop acreage report) as well as the information provided with the producer’s license number, and (2) any hemp exceeding the acceptable THC level must be disposed of according to disposal methods approved by the USDA. Furthermore, existing borrowers growing hemp with an individual USDA, state or tribal license would be considered in non-monetary default. The guidance reiterates that “hemp will be considered like any other borrower produced commodity if the hemp was produced under a licensed authorized by the 2014 or 2018 Farm Bills.”

With respect to FSA assistance for direct loan servicing, hemp producers should:

• Provide a farm business plan based upon standard production budgets relying on data from contractors, consultants or extension specialists;
• Maintain income sources that are dependable, likely to continue and based “accurate and verifiable [historical] information;”
• Ensure the availability of a banking institution authorizing the financial transactions to ensure availability of proceeds to support payment of expenses and debts; and
• To the extent a hemp crop is collected and/or destroyed according to the license requirements, the borrower is required to provide the FSA with a copy of the required lot-destruction documentation.
  
  

With respect to guaranteed loan servicing assistance, the guidance provides:

• When reviewing a Standard Eligible Lender (SEL) servicing application, the FSA should ensure all planned hemp acreage matches the license and that the lender has obtained a copy of the borrower’s current license;
• SEL and Certified Lender Program (CLP) lenders provide appropriate additional documentation to the FSA;
• SEL and CLP lenders will continue to routinely service borrowers and monitor collateral;
• SEL and CLP lenders will continue to restructure loans as required and seek FSA approval as necessary; and
• SEL and CLP lenders will develop and submit liquidation plans to FSA as required.
  
  

It’s likely that the USDA updated its guidance in anticipation of an uptick of loan applications from the hemp industry in light of hemp’s legalization. Hopefully the USDA’s efforts will provide the clarity necessary for hemp lending to become the norm, rather than a special occurrence in the cannabis industry.

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