The state’s top prosecutor has approved an experimental program designed to get marijuana dispensaries out of the business of having to pay their bills with suitcases and sacks full of cash.
Attorney General Mark Brnovich agreed to allow ALTA to form what the company calls a “digital payment club,’’ with the eye specifically on marketing its service to the marijuana industry which has no legal access to banks.
While the sale of marijuana is legal in Arizona and many other states, possession and sale remains a felony under federal law. And federally regulated banks are barred from doing business with criminal enterprises.
That also locks the industry out of using credit cards.
ALTA’s system allows dispensaries and others in the marijuana business to convert their cash to a digital “token’’ and use those to pay suppliers and others willing to accept them.
One of the first customers they hope to have is the state Department of Revenue, eliminating the current need for dispensary owners literally having to drag cash to a state office to pay their tax bills and have it counted out there.
Brnovich is involved because ALTA will not be licensed by the state, at least not now.
Instead, Brnovich is using powers given to him by the Legislature to authorize exemptions from various financial laws, ranging from consumer lending to money transfer, through a “sandbox’’ program for companies to try out new or unusual financial programs in Arizona. Aide Ryan Anderson said what ALTA is doing meets the test.
ALTA owners have up to two years to prove out whether the program works, with limits in the interim on how much cash they can handle. By that time the company either needs to get a regular state license – and be subject to state oversight – or go out of business.
But Sarah Wessel, the company’s cofounder, said she believes that there is a need.
Both marijuana dispensaries and the folks that do business with them would be willing to pay some percentage of the transaction to ALTA to avoid handling all that cash, Wessel believes.
Tim Sultan, executive director of the Arizona Dispensaries Association, said, “We’d like to see a solution to this cash management problem.’’
“There’s just too much cash in the industry because banks can’t do business with us,’’ Sultan explained. “We have dispensary owners paying their employees with cash, paying their vendors, paying their electric bills, going to APS with thousands of dollars, paying their taxes with tens of thousands of dollars cash and just feeling really nervous walking up there with a bag full of cash.’’
Congress is considering the Secure and Fair Enforcement Banking Act. While it technically would not overturn the ban on dealing with what the federal government considers criminals, it would prevent federal banking regulators from punishing banks for working with cannabis-related industries that are legal under the laws of the state where they operate.
Nothing would affect customers, who would still be expected to pay cash.
What would be different is that dispensaries that join ALTA would have their cash picked up by an armored car company. Their accounts would be credited with those ALTA tokens, one dollar equal to one token.
And unlike bitcoins, they would have a fixed value.
“They can pay whoever they’re paying cash now on our system,’’ Wessel explained, whether taxes, utilities, payroll or even other dispensaries. Then the merchants who get the tokens can cash them in online for actual dollars credited to their accounts.
Anderson said that his agency’s approval of the model has some built-in protections.
He said ALTA remains subject to the state’s Consumer Fraud Act, which gives the Attorney General’s Office powers to protect people from financial crimes.
The company had to provide access to the company’s books and bank accounts, meaning that the state will be able to monitor whether there is the cash available to pay off the tokens.
Jesse Forrest, the company’s other cofounder, said he believes that both dispensaries and suppliers will see the advantage of using this payment system, even with any fees, instead of remaining on a cash-only basis.
Consider, he said, a marijuana cultivator who does $30 million worth of business every year with a dispensary. It starts with the added cost of employees to count and keep track of the cash.
Then there’s the cost of an armored car to pick up the day’s receipts, Forrest said, running about $2,500 per stop.
“Plus, we’ve got employee skimmage, we’ve got the risk of just being outright robbed, you’ve got to buy a safe, I’ve got to buy a safe, somebody’s got to count it, it’s probably not getting recorded into the books,’’ he said.