San Bruno, California-based Dama Financial has provided essential banking services to the cannabis industry since it was founded in 2016. As the industry has developed, however, the company realized that it needed to become more of a full-service financial provider, and to that end it announced in February that it had hired a 30-year veteran of the payments and financial services industry, Patrick O’Boyle, as its new CEO. Since then, as he explained during a recent call with Cannabis Business Executive, O’Boyle has been busy continuing the expansion of Dama’s portfolio of products and services to become the end-to-end provider of financial services that the cannabis industry needs.

“Dama made a change of direction to expand its services beyond just banking,” said O’Boyle of the decision to bring him onboard. “There was a need in this industry for a complete end-to-end set of business solutions; not just compliant banking services, but point-of-sale, consumer payments, e-commerce, delivery, integration with wholesale, and then access to the business data and analytics critical to managing and growing your vertical business. That was the vision of where we wanted to go, and they were looking for someone with a strong background in banking, and payments and software – or at least POS-savvy – and delivery execution from the standpoint of planning out an enterprise set of solutions and delivering them to the market.

“That has been my primary focus, getting everything together, and especially with our customer service,” he added. “We want one point of contact, if you will, one customer support service center that can handle all of the needs and support needs of your business. A one-stop-shop for all your support needs so you don’t have to play systems integrator yourself as a vertical, trying to match up a wholesaler with a POS with an e-commerce plugin with the different payment providers, and then a different banking solution, but you have it all together as one offering to really operationalize the solution. That’s the vision, that’s what we’re marching towards, and we are starting to further integrate those components and build out those capabilities and really push towards that midsize and larger market.”

From a financial perspective, O’Boyle chose an interesting time to enter the cannabis industry, to say the least. “It’s a challenge,” he admitted. “Some people described it as a little bit of the wild west when I was coming in, and it is. But it’s not so much the companies themselves that is the reason why it’s the Wild West. It’s government intervention, or lack thereof, that’s causing it to be the Wild West. So, it makes for a unique environment to come into, and none of the normal big players are in this market, so it’s very unusual. Think about an industry where there are none of the normal big players in any market segment. With POS in the retail restaurant industry, you have your top 10, and they’ve been the top 10 for five years. That’s who they are, the who’s who of payments. Same with e-commerce platforms; the who’s who. But none of those normal players are in this industry because of the regulatory situation, and it has made for such a unique environment that I don’t know if we’ll see this again. It’s very odd.”

Still, aren’t there always people willing to offer financial services in these high-risk industries? “You’re right,” said O’Boyle, “but look at Toast, which is the POS provider in the restaurant industry. What keeps Toast from saying, ‘Heck, if we’re really good at this, why we can’t we just work in the dispensary and change a few things to do that?’ What keeps them from coming in? Two key reasons: One is the regulatory piece. They can’t just build a national solution for the entire industry because every state has its own regulations, so it’s very cumbersome.

“But the other big reason is banking,” he continued. “Maybe they want to go take out a big loan to get into this industry, and as soon as their current bank hears that it’s going to be the cannabis industry, they’re probably going to say, ‘No, we’re not supporting that, and by the way, if you start getting your SAAS income from the cannabis industry, you better go bank somewhere else, because we’re not allowing that money to mix with your “good money” or “clean money,’” as I’ve heard non-cannabis money called. So, it makes it onerous for them.”

Those same factors also make cannabis an industry ripe for providers like Dama to be able to help people, but it’s an odd situation, noted O’Boyle. “If you’re opening a retail business in any other market segment,” he pointed out, “you still have to win over customers and have a great product to do well, but it’s a no-brainer to walk into any of the five banks I’m staring at out my window right now, where you can open a business checking account, apply for a loan and probably get it, call any one of 20 POS providers and get the service plugged it in within a day, and be up and running. You can’t do that with cannabis because none of those normal players will play.”

I recalled that UberEATS was flirting with cannabis delivery up in Canada, probably as a precursor to doing the same in the States. “Canada is a different world,” noted O’Boyle. “Because it’s not a federally illegal drug, it’s easier to get into that, and the only consideration from a bank to bank them is if it is financially sound.

“Would Uber and Lyft and whoever else love to get into cannabis delivery down here,” he added. “I’m sure they would, but they’re not able to because their banks won’t touch that money. They don’t want to get involved with it, and with the regulatory piece, they don’t want to change their systems that much to deal with all of the requirements you have to have, like cameras and tracking and data that can be pulled up by state auditors to make sure what you shipped and where you shipped it. They don’t want to get into all that, so they just stay out of it, and third-party groups, like mini-Ubers and mini-Lyfts, start up just in this industry just like we did with GrowFlow, our POS, because while there are obviously POS providers out here, you can’t use what’s off the shelf in the normal retail world.”

All that as a given, will those big players integrate cannabis into their existing models when they are able to do so? “I think they’ll do one of two things,” said O’Boyle. “They’ll jump in, but you will probably still have the heavy regulatory environment, which will be onerous, so they will probably try to gobble up a lot of the POS providers and bring them in under their parent. So, QuickBooks will gobble up some cannabis POS and makes it part of their cannabis industry offering because they don’t want to develop it from scratch.”

Will QuickBooks come for Dama? “Our situation is a little different,” replied O’Boyle. “It would be true on our POS side, but our goal is to be the customer’s access point so that when someone looks at any part of the solution we’re providing, our customer service and support is so strong with that one-stop-shop for all needs that the cannabis owner of that vertical is going to say, ‘Why am I going to leave just for the POS piece when they have all of this together and I can package it in such a way that it’s cost effective, all my data flows, and I have one support place to call? It makes running my business too easy for me to let anyone pull out a little piece here or there. I’m just going to work with Dama for the whole solution.’

“On the banking side,” continued Boyle, “one big mindset change I helped bring along was that [the SAFE Act] is 100 percent good for us. I don’t know if there was a mantra different from that, but I have played through this scenario and thought about this. We want to add more depository bank relationships, and we have a fintech and compliance tech layer we wrap around a bank. We’re not a bank. We wrap our layer around a bank that wants to get involved in the cannabis industry. That wrapper, if you will, provides compliance, tech, and customer support for these banks, so they want to bank with cannabis, because we insulate them and keep the workload and exposure away from the rest of their solutions.”

Embracing The SAFE Act

On the possible passage of the SAFE Act anytime soon, O’Boyle expressed doubts. “We’re not sure we can count on our elected officials to rally together and take positive action towards much, unfortunately,” he said. “It’s just the climate. I think just getting caught up in the climate of zero cooperation and compromise is a large part of the bill’s issue right now. There are a few items that I’ve heard related to some neglecting of veterans’ considerations in the bill. There are some concerns about a thing called a choke-point clause that was put in the bill to try to protect government from clamping down on banks that do or don’t support certain aspects of a business. It has to do with something 10 years ago during the Obama era when banks that were banking firearms or tobacco were attacked, and a clause was put in so that can’t happen in this industry. So, everything is there to get this done. The bill’s not perfect, but it would be a huge step forward. It just feels like there’s no room for compromise.”

Dama Financial gained some unwanted controversy when its compliance officer left the impression during a Senate committee hearing in May that the company does not support the passage of the SAFE Act. Following industry push back, the remarks were officially revised to correct the record and more accurately reflect the position of the company. “While there is need to address other compliance and banking enhancements for the industry,” read the revised remarks in part, “Dama believes these enhancements should not hold up the passing of the SAFE Banking Act, S. 1323t now, as a first step to improving the industry’s access to financial services and products.”

During our conversation, I asked O’Boyle if he could flesh out what “other compliance and banking enhancements for the industry” they were referring to. “I won’t go into the gory details,” he replied, “but at the risk of erring toward trying to create the perfect versus the good, which can get you down a path that can be unachievable, which is unfortunate for our stance of trying to be overly compliant and inclusive, this bill doesn’t alleviate the level of effort needed for compliance, the immense workload that’s needed to bank the cannabis industry.

“Our concern” he continued, “was that if it was passed as it is, many banks will say, ‘Great, we’re getting into it,’ and then they’ll evaluate the level of compliance requirements still required and go, ‘Wait, we can’t get into this; this too much workload for us for the cannabis businesses in our area. It’s just not worth our effort for what we have to do compliance-wise. We want to see something streamlined so it looks and smells more like the liquor industry versus something much more ramped up on compliance steroids.”

Will cannabis not remain a high-risk business with respect to financial services even after federal legalization? “There are two levels of risk,” explained O’Boyle. “There is risk that is risky because of the regulations put upon the industry. That would be like the liquor industry, where the percentage of banks that support the manufacture and distribution of liquor is tiny. Why? Because the regulations are difficult. Financially, they’re very sound businesses, so there’s little risk there, but it’s a risk for banks because there’s extra regulatory compliance work. What will happen with the [SAFE Act] is that you’re going to have even more regulatory compliance put on top of what’s already there. And let’s face it, a lot of businesses are not in a fantastic situation mainly because of other constraints related to tax laws and state laws and so forth. It makes for a tough situation for your regular old community bank. They’re going to look at the compliance, and they’re going to look at the situation with many of the customers they might have access to, and they’re going to say, ‘Yeah, we’re not going to bank any of these. It’s too tough for us.’

“So that was our concern,” he concluded. “And this could be something added later but look at what just happened to the industry with the card associations. We were pushing hard for there to be a requirement for more access to debit and credit processing as part of this. They’re part of the banking network. But there was no push to make the acquiring banks that make up the card association network get into the market, and now look at what just happened to the market with MasterCard, and the changing of the debit processing to disallow that. Not that it necessarily was previously allowed, but it was being permitted it seems, and now there’s a hard crackdown. So, there’s additional needs that the bill has, but even if in its current form it’s still a step forward to start addressing those other items. And it looked like it was going to pass, it really did, but there’s no desire to see success, and there’s a lack of willingness to compromise to get something passed and get a win for the industry and for the United States. They’re just not willing to do it.”

I noted that during a visit to my local Connecticut dispensary the previous day, debit cards were being accepted at the register. “That’s what happens when you don’t have this clear path forward from a regulatory standpoint, and you have things happen like what happened last week,” said O’Boyle. “You force some of these dispensaries to take actions that maybe aren’t in their best interest. But they’ve got to keep the revenue flowing, so is it better to be on wide open debit processing, or is it better to be running something through some crypto solution that will run for a little while but is an even a darker place to be?”

The Dama Difference

Returning to the subject of Dama, I asked O’Boyle if an ultimate goal for the company was to alleviate workload pressure and costs on banks so more of them will bank cannabis businesses. “We actually do it,” he confirmed. “There are providers out there who say, ‘Here’s a piece of software; you can automate it and do it yourself.’ But you still have to do it yourself and throw the workload and people at it. We provide the complete solution such that we know the compliance, we do the support of the customer, and we provide the integration with a payments bank core system, so you don’t have to do any of that technology integration to start supporting the cannabis industry. We do all of that, and you get to realize the benefit of having deposits on your books, and you get to realize fee income if you’re banking them 100 percent. But we’re your arms and legs and technology capability to completely support them.”

I observed that other financial services companies were also working to expand the breadth of their services, and asked O’Boyle how Dama differentiated itself. “We are the only complete end-to-end provider,” he said. “We’re the only one that has banking, point of sale, consumer payments, and wholesale integration capability, all end-to-end. There are truly banks out there, and there are people who play in the banking space and provide just compliance software, but nobody partners with the number of banks we do to try to bring the banking market safely to the cannabis industry versus banking them ourselves. We don’t do that. But when you think about a complete end-to-end solution, the complete cannabis business solution wrapped with that one-stop customer support, there isn’t a direct competitor that has that solution. We’re really targeting that mid-size vertical market.”

The sectors it services includes just about everything from retail and delivery, manufacturing, distributors, cultivators, brands, to ancillary businesses. ‘Originally we were just banking,” said O’Boyle. “Dama Financial was intended to fill the gap of no access to banking services; having a bank account, able to pay your bills, or pay your employees with a regular business banking account, and check writing and ACH wire capabilities. About a year ago, we acquired and brought in the software component – Dama’s GrowFlow POS – to service the retail dispensary side of the industry, and then the wholesale solution, to handle the non-dispensary rest of the supply chain. That was really the key change, moving away from just banking to that holistic solution because we saw a need and such a benefit to being able to pull all of those components together with banking.”

In an industry that is simultaneously growing and contracting, efficacy is the holy grail. “Without a doubt, and that’s where we think our strength plays in,” agreed O’Boyle. “And you’re right, this market is in the hardest situation of both expanding and somewhat contracting or condensing within individual markets. This has a lot to do with access to initial capital and the overreach of the tax implications, etcetera.”

It would also seem that compliance is one universal demand that never quits. “Besides being unbelievably onerous,” added O’Boyle, “when you move into a new market, like Missouri, what you built out for the California, Washington, Oregon, or New Mexico markets is very different. The point of sale has differences, aspects of banking needs are different, and you definitely have different relationships with cash management, cash pickup, and so forth. Delivery also has all types of different requirements, and everything through the packaging manufacturer has different requirements, so you have to change the software for every new environment.

“And the customers know that they need something that can work,” he added. “I think where they have been concerned, and what they run into many times, is that it’s tough to go into new markets if you’re not 100 percent ready with your software. I think some of the cannabis-related businesses have been bitten by having a solution provider come in that isn’t hitting all of their regulatory compliance needs, and the CRBs are the ones that own the risk. So, they realize, ‘Oh, my gosh, it’s not doing this piece of tracking, it doesn’t have this, and we’re the ones liable.’ It’s just so onerous, and they also own the risk, so trying to find a partner who is ready for those markets is critical now.”

On the flip side, the cannabis industry is experiencing topline growth, with certain sectors taking the lead. “Retail is seeing the most growth, and that’s where everyone’s running to,” explained O’Boyle. “Depending on regulatory factors by state, we also think there’s going to be a big focus on delivery and e-commerce, and that you’re really going to see some growth here. Some states are going to start realizing they need to loosen up a little bit and allow delivery and e-commerce, and I think those will really drive the consumer side. We’re also seeing more and more small vertical integrations where it’s allowed. Some states don’t allow it, but where they do allow it, there’s more efficiency to own it and to run it end to end. And we’re seeing a lot of acquisitions, the gobbling up of players. I won’t mention names, but a few companies are out there looking for the opportunity to take up that manufacturer, that dispensary, that packaging group. The only one I don’t see as much, probably because I don’t have as much visibility, is cultivation, which we have not focused on a lot.”

As far as the scope of Dama’s clientele goes, “It’s really a wide breadth,” said O’Boyle. “If you’re talking about our banking clients, it’s everything along the supply chain, because everyone needs banking services, so that is pretty even across all the different sectors of the supply chain. When you look at point-of-sale, the vision is still coming together, and obviously will be on the dispensary side. Our wholesale does support cultivation all the way through, but we’re starting to hone-in a little bit more on to the manufacturing and labeling/packaging side because of some changes that are happening with BioTrack and METRC. The cultivation market has changed so much that we’re focusing the wholesale solution more on a touch point for inventory going to the dispensary to try to solve that big work effort piece of importing and managing your inventory effectively. So, we’re really trying to solve that problem.”

I also asked about the cost dynamics in the financial services sector and the pressure that puts on companies, including Dama. “We’ve seen more cost compression, which is a typical unfortunate service provider approach of the race to zero,” answered O’Boyle. “That is still there, and we feel those pressures. We’re trying to differentiate that with the complete solution. We believe that with the ability to provide all the solutions, we can bundle and therefore make some aspects of the bundle – like the point of sale – very inexpensive because of the other services where we can make money and provide service. But there’s a lot of individual players, and if you get some small POS willing to give it away for nothing, well, that’s what you’re up against. We’re in an industry that is being squeezed a bit, and sometimes that can seem attractive, but it’s not a long-term play. That constant balance between the value being provided and the price you’re charging is like any industry. It’s always there.”

So, what are the greatest headwinds people are experiencing around finances and banking. “The biggest headwind I hear about is access to capital, whether that is investment or access to bank loans, or any form of non-predatory lending type scenarios,” said O’Boyle. “But any access to legitimate capital or lending is going to be a concern, because this is a market that takes a lot of investment, and it is not efficient right now with the regulatory situation and the tax situation. So, there’s going to be a need to continue growing businesses both on the supplier side and the leaf-touching side, and that concerns me. I think there’ll be some opportunities as businesses need to come together for economies of scale, but at the same time it should concern the whole industry, because a non-financially healthy industry is not good for anybody. If the states and the Feds saw that, they would try to take some steps, but they’re just not seeing it or not hearing it.”

What is the role of companies like Dama in such a precarious environment? “We are trying to vet opportunities for lending that is not onerous and can help businesses with working capital loans and loans to build out or maybe even purchase additional licenses,” he said. “We’re looking at those opportunities, and I’m hoping that we’ll have solutions by the fourth quarter for that type of service. But again, when it comes to lending or investment, we have to look at the industry as a whole, and my concern right now is for the people who touch the leaf. They’re the ones who have to be making money so that service providers like us can offer them services. If they can’t afford us or can’t do it because they’re not making any money by selling the product, that’s a concern for the whole industry, and I just find it hard to believe that state and federal legislators cannot see that it’s too cumbersome right now.”

In California, cannabis companies are not able to pay one another. “That’s right,” agreed O’Boyle. “Is that a healthy industry? No. Only bad things come from that, and it’s because of regulations. It’s the only thing holding the industry back.”

Focus on the Future

As bleak as it all may sound, Dama is building out solutions to the issues the industry faces and girding for a future by adding essential staff. “We have been hiring and we continue to hire,” said O’Boyle. “Some of it has been replacements, but much of it is for initiatives around our banking and our point-of-sale enhancements. For 2023, we’re rounding out the foundation of our complete integrated solution so that, moving towards 2024, it’s completely in place and the differentiation of that access to the end-to-end data for a business operator will be enormous. Then, putting our ability to package how we provide these solutions to customers will be very cost-effective to them, and will be very conducive to them being operationally efficient. We are adding mostly account executives – consultative salespeople, as well as people with experience around banking – because of banking improvements we’re making in our infrastructure and our compliance capabilities, plus some automation work we’re doing.”

What about adding additional services, like collections or insurance? “Not collections as much as insurance and payroll, which we have through third parties,” replied O’Boyle. “We also look to see if solutions are best as a third party or might be something Dama wants to bring in and do itself. If it’s core to the system, then we bring it in. If it’s not, then it’s provided by what many businesses call their vetted provider. When we do that, we want to have one solution provider or maybe two, but typically one, so that we are as tightly integrated with them as we can be so there’s still that free flow of data. We have an open architecture system where we can integrate with about anybody, but if you have too many integrations you may not be able to provide the amount of value to a customer that you really want, so I like to be very close to third-parties from a technology and support perspective.”

There is certainly plenty of opportunity out there for Dama, which currently provides banking in every legal cannabis market. “We’re refining cash management agreements in certain states to make them more efficient,” added O’Boyle. “Some of the states are newer and we’re trying to build out a better relationship in them for the cash side, because that’s still a very real part of this industry With POS, we’re currently in five states. We will expand pretty quickly, however.”

And what sort of questions should people be asking as they shop for financial services? “What we are building our system towards is that vertical solution, the operator that controls the wholesale and the dispensary side, end to end,” answered O’Boyle. “In that case, the question is whether there is a provider out there who can provide me access to my banking, who has been in the banking service for quite some time, and who can provide me a compliant point of sale with a consumer payments solution, whether ACH or debit if it comes back around, but at least an ACH-integrated solution for payment or some kind of loyalty card integration.

“Do they have integration with their wholesale side so they can solve some of the inventory and data management concerns that we hear about from every vertical, like, ‘I don’t have access to the corporate data I need to make it operationally efficient to grow my business.’ They just need to ask those simple questions. ‘Is there a provider out there who can provide all of this and be my one-stop-shop for all support needs, so I don’t have to play systems integrator?’ I’d be at least willing to listen and hear how that can be a differentiating solution for my cannabis business.”

Dama’s focus is clearly on helping vertical cannabis businesses, but what about the cannabis retailer with 5,10, or 20 stores? “We can still help them on the POS side and with banking, and depending on who they are using as a supplier, we can integrate with them too,” said O’Boyle. “We like to say we are a nimble partner who can grow with you. We have a wholesale solution, but because of the way our system has been built, we can also do a base integration with your wholesale provider to at least take some of your inventory management pain away. We may not be able to get all of the data aspects, but we can certainly alleviate part of your pain, which is more than 99 percent of the market has any ability to do.”