Cannabis is a high-risk banking sector, but it isn’t illegal to bank. That’s the message cannabis banking and compliance service suite Dama Financial is spreading. CEO Anh Hatzopoulos is joined by co-founders Dan Henry and George Gresham, all payment industry veterans, and their multi-city team, to support the rapidly evolving space.
After analyzing the marketplace, the trio came to the conclusion many had reached about the banking conundrum: “It was difficult to solve,” said Hatzopoulos.
They waited to see legislators take action, but nothing came about. As each state legalized medical or adult use, they saw a growing public safety issue taking shape. In 2017, Dama Financial launched to address the ever-increasing issue.
Dama aims to show both sides that banking solutions exist today under the current regulatory structure. Using its suite of services and tools, the company aims to educate and empower cannabis businesses to access an FDIC-insured bank account without using deceptions.
In a November 2021 interview, Hatzopoulos, said the industry is in the early stages of its evolution. “We’ll look back a decade or two from now, and we won’t believe what it used to look like,” she said.
Years from now, it is expected that federal legislation will make cannabis banking commonplace. Dama believes companies and banks don’t need to wait until further legislative action takes place–normalization can begin now.
That said, the process isn’t easy. “It does require harnessing a lot of existing infrastructure in order to solve this problem in a safe way,” said Hatzopoulos.
High risk, but not illegal to bank
Legal cannabis ventures often find themselves with limited or no banking options. Even when they obtain bank accounts, they often see them closed.
It’s widely believed that cannabis’ federal illegality causes the ongoing banking headache. However, Hatzopoulos says current guidelines do allow banks to serve cannabis companies, but many won’t because of the risk associated with the industry.
“As companies are coming into the legal market, they bring history with them that does require a lot of data and care for a bank of any size to feel comfortable with,” Hatzopoulos said.
While the high bar frustrates industry businesses, she emphasized that banks must undergo a high level of due diligence, or they risk allowing additional bad actors into the banking system. “Unfortunately, it does create some rigidity because there’s not a lot of systems that are sophisticated enough yet,” she said. The CEO added that continued tech progress would eventually see a system capable of vetting applicants, in cannabis and other sectors, but nothing is currently close.
While waiting on the tech, there is hope that federal legislation will provide banking relief. Many see the SAFE Banking Act as the potential go-ahead to begin working with financial institutions. While Hatzopoulos supports SAFE Banking legislation, she doesn’t believe it will help banks or regulators warm to cannabis.
“It’s not prescriptive,” Hatzopoulos said of the bill, believing it doesn’t resolve the ongoing concerns. She added that non-prescriptive legislation often creates additional grey areas, heightening risks. She doesn’t see SAFE Banking passing in its current form, believing that the bill does not conquer the current complexity of the landscape.
“The fact that there are still unbanked cannabis businesses operating the right way and being transparent is a shame,” said Hatzopoulos.
Dama Financial feels that the cannabis market isn’t aware of the solutions already available to their businesses. At the same time, the company and its CEO feel that some banks could scale their programs to remain sustainable as industry operators grow and the marketplace further develops.
The company intends to educate each state market about their options and the unique laws within their marketplace. While heavily invested in the West Coast market, the company also looks to the rest of the nation, hoping to inform all operators about their banking options.
“We’ve done a great job of driving awareness on the West Coast, but we actually can serve the entire country,” Hatzopoulos said.