Marijuana money poses problems for Arizona dispensaries
‘Digital payment club’ allowed since dispensaries cannot use banks
PHOENIX — 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.
Put simply, the system allows dispensaries and others in the marijuana business to convert their cash to digital “tokens’’ and use those to pay suppliers and others willing to accept them.
And one of the first customers they hope to have is the state Department of Revenue, eliminating the current need for dispensary owners to literally drag cash to a state office to pay their tax bills and have it counted out there.
The reason Brnovich is involved is that 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 co-founder, said she believes there is a need. More to the point, Wessel thinks that 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.
And there’s a lot of it, according to Tim Sultan, executive director of the Arizona Dispensaries Association.
“We’d like to see a solution to this cash-management problem,’’ he told Capitol Media Services.
“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.’’
The cash problem traces its roots to the fact that 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.
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.
For the moment, though, it remains a cash business. That is where Wessel said Alta hopes to fit in and find a profitable niche.
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. More to the point, 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 approval of the model has some built-in protections.
First, 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. But he also said that, in giving the go-ahead to Alta, the company had to provide access to its books and bank accounts, meaning that the state will be able to monitor whether there is cash available to pay off the tokens.
The system is built under the presumption that both the dispensaries and those who are their suppliers are willing to let Alta keep some percentage of the transaction as a convenience fee.
Wessel declined to spell out the cost, saying it would depend on the classification of the business. But she figured that, on average, the transaction might take only about a third of the 3 percent fee that a credit card company charges.
She acknowledged, though, that there is a key desire to ensure that the state Department of Revenue will join the system. And Wessel said that Alta would waive any fees for that agency in order to make that happen.
But 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.
Sultan said the dispensaries agree with the conclusion that a fee-based payment system would still be cheaper in the long run than continuing to operate on an all-cash basis.