Medical marijuana dispensaries cannot do business with banks or credit card companies because of federal regulations.

PHOENIX — The state’s top prosecutor approved an experimental program designed to get medical-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” to market 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 into digital “tokens” and use those to pay suppliers and others willing to accept them.

One of the first customers the company hopes to have is the state Department of Revenue, which would eliminate the need for dispensary owners to take 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 for 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 transfers, through a “sandbox” program for companies to try out new or unusual financial programs in Arizona.

What Alta is doing meets the test, said Brnovich aide Ryan Anderson.

Alta owners have up to two years to prove 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.

Sarah Wessel, the company’s co-founder, said she believes there is a need for the service. She said marijuana dispensaries and the folks who 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, said Tim Sultan, executive director of the Arizona Dispensaries Association.

“We’d like to see a solution to this cash management problem,” he said. “There’s just too much cash in the industry because banks can’t do business with us.

“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,” Sultan said.

The cash problem exists because while the sale of medical marijuana is legal in Arizona and many other states, possession and sale remain felonies 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 now, though, it remains a cash business.

That’s 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.

Their accounts would be credited with the 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 other dispensaries.

Then the merchants who get the tokens can cash them in online for dollars credited to their accounts.

Anderson said the attorney general’s approval of the model has some built-in protections.

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Alta remains subject to the state’s Consumer Fraud Act, which gives the Attorney General’s Office powers to protect people from financial crimes.

Also, in getting the go-ahead, Alta had to provide access to the company’s books and bank accounts, so 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 the dispensaries and 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 business’ classification.

But she figured that, on average, the transaction might take about a third of the 3 percent fee that a credit card company charges.

To get the state Department of Revenue to join the system, Wessel said Alta would waive any fees for that agency.

Jesse Forrest, the company’s other co-founder, described the incentives for the marijuana industry to get out of the cash-only business.

Consider, he said, a marijuana cultivator who does $30 million worth of business every year with a dispensary.

Employees must count and keep track of the cash. Then there’s the cost of an armored car to pick up the day’s receipts, running about $2,500 per stop, Forrest said.

“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.