In The Push Against Cash, Cannabis FinTech Meets The Industry Where It Is

Despite expanding legalization of cannabis, businesses operating legally in the space face no shortage of headaches when it comes to getting banked, accessing loans and having access to the critical financial services any company needs to operate.

For players in this high-cash market, it is a well-known fact that — in addition to the traditional pains of operating a small business — compliance and a lack of access to the banking sector create compounded difficulties.

“Everything in cannabis is harder than it should be,” said Anh Hatzopoulos, co-founder and chief executive officer of cannabis FinTech Dama Financial.

Designed to make banking and payments easier for businesses, Dama is part of a growing community of B2B solution providers helping the cannabis industry to leapfrog into a digital-first financial management strategy. Yet not every company is necessarily ready to overhaul back-office operations that were designed to support a high volume of cash. What’s key, said Hatzopoulos, is offering financial tools that can meet these businesses where they are.

Holistic Financial Management

Dama Financial collaborates with banks to bridge their services to legal cannabis businesses. Such an intermediary is a necessity for many financial institutions that, while they may be interested in banking this sector, lack the resources required to onboard and service these firms.

“For a bank to go out and try to serve this industry, their obligation is to know their customer,” said Hatzopoulos. “In order to do that, it takes a mountain of data and infrastructure to process the data and understand who that customer really is. Knowing a customer that has such a high concentration of cash is extremely difficult.”

As a partner, Dama can use its resources and expertise in such compliance matters and handle the heavy lifting of customer acquisition as well. The FinTech then wields those banking providers to offer a variety of financial services for cannabis businesses, including bank accounts, B2B and B2C payments, invoicing, cash management and — its most recent addition — payroll.

The latter is a service that noncannabis companies can take for granted, noted Hatzopoulos. For high-cash industries, payroll is a major source of friction and compliance risk. Cash payments to employees are not traceable, and there is no way to prove to state regulators and officials that employees are paid the proper amounts. Plus, there are the obvious challenges for the employees themselves that are forced to accept and carry around cash.

Meeting The Industry Where It Is

Offering a holistic financial services solution through a streamlined platform can be an advantage for a small business in any industry. As natively integrated tools, these product suites can support the need for business executives to obtain real-time visibility into financial positions.

Through access to banking services and payment rails, FinTechs like Dama can take a ground-level approach to helping cannabis businesses migrate away from cash and embrace electronic payments, be it electronic payroll, B2B payments or otherwise.

But Hatzopoulos noted that it’s just as crucial to address the pain points of cash without forcing companies in the space to digitize. Much like developing technology to digitize and optimize check payments in the accounts receivable department with an ultimate end goal of nixing checks in favor of electronic payments, the cannabis market may find that easing cash-related pains before getting rid of cash altogether can be a less disruptive path to digitization.

“We would love for the industry to be 100 percent electronic, but that’s not where we are,” she said. “Have we been able to impact that? Yes. But at the scale that would change the profile of cash-versus-electronic? Not yet. We have to be realistic about how we truly serve this industry.”

This is why Dama offers a choice for businesses in services like its invoicing tool, which can facilitate acceptance of either electronic or cash payments. When choosing the latter, businesses are offered a way to schedule a secure cash pick-up service.

It’s all about “meeting the industry where it needs to be met,” said Hatzopoulos, but also acknowledging that the industry is changing rapidly, so having FinTech solutions that can evolve alongside the market and ease the journey into a potentially cashless future is essential.

“The industry is certainly evolving in such a positive way that I think there are more and more businesses that really want to operate in a sustainable way,” she said. “The movement for companies to want to operate more like a traditional business is one that we’re seeing and that we welcome.”