Missouri Cannabis Extraction Company Loses Appeal Of Revoked License, With Commission Citing ‘Corporate Culture Of Lax Compliance’

“We conclude this non-compliance was intentional.”

By Rebecca Rivas, Missouri Independent

The company at the center of a massive cannabis product recall in 2023 lost its appeal to get its license back on Tuesday, with Missouri’s Administrative Hearing Commission concluding it had a “corporate culture of lax compliance with regulatory requirements.”

The scathing 137-page ruling, issued by Commissioner Carole Iles, comes almost a year after a three-day hearing on the appeal filed by Robertsville-based Delta Extraction.

Iles agreed with the Missouri Division of Cannabis Regulation that the company’s practice of bringing in hemp-derived THC concentrate from other states and adding it to Missouri-grown marijuana products was a violation of state law.

Almost all of the reasons cited for revoking Delta’s license and pulling 60,000 marijuana products off the shelves were upheld. That list included failing to notify law enforcement immediately after someone broke into Delta’s Robertsville facility and stole the company’s server, just days after the state shut down its operation. The server included the only copy of Delta’s video surveillance files.

It also included allowing a contractor who was previously convicted of conspiracy to distribute cocaine to operate its facility on the weekends when he didn’t have a state-issued agent identification card. During that time, regulators say the contractor was using another Delta employee’s ID to enter the facility and logging information into the state’s system used to track and trace products, Iles wrote.

Chuck Hatfield, an attorney for Delta Extraction, said the company has no comment. A spokeswoman for the division said in an email to The Independent that the department is currently reviewing the decision.

The case has been widely watched by companies who had to destroy the products they purchased from Delta or have had them locked in vaults since the recall in August 2023.

The company’s challenge also posed major questions about whether the state has the authority to regulate intoxicating hemp products.

Delta Extraction admitted to importing a large amount of THC-A—a non-psychoactive compound of the cannabis plant that becomes intoxicating when heated—purportedly extracted from hemp plants. The company’s contractor, Jason Sparks, would mix it with a smaller amount of THC-A extracted from Missouri-regulated marijuana.

Delta argued the hemp-derived THC-A should fall under the same rules as added ingredients, like flavors or the non-intoxicating cannabis compound CBD, because hemp is not a federally controlled substance like marijuana.

But Iles wrote that THC-A becomes intoxicating through the exact same process no matter if it’s extracted from hemp or marijuana, so the state is correct in regulating the THC the same as marijuana.

That means it must be grown and manufactured in licensed Missouri facilities, Iles concluded, and tracked from the time the seed goes into the soil.

“THC originating from other sources is prohibited,” her order states.

Weekend productions

Iles’s order outlined the timeline of how Delta came into a “partnership” with Sparks, who worked with the Oklahoma-based marijuana brand Conte.

In December 2021, Rachael Herndon, who was serving as Delta’s chief operations and compliance officer, learned that Conte had broken off its relationship with a different manufacturer and might be looking for a new partner. She met with Sparks to discuss Delta partnering with Conte to manufacture and sell its brand.

As part of their agreements, Iles’s ruling states that Conte licensed its brand to Delta, which at the time was called SLCC, and received a royalty for all products sold under the Conte brand in Missouri.

“The parameters of the arrangements were not entirely clear, but there were oral arrangements” between Delta and Sparks’ company SND Equipment Leasing LLC and Conte, Iles wrote.

Sparks became responsible for providing the unregulated THC-A oil to be used in the Conte products, Iles wrote, along with extracting and distilling the final THC distillate that would be incorporated into the Conte products. In a separate agreement, Sparks and Delta agreed that he’d manufacture a bulk distillate that was later sold to about 100 other Missouri manufacturers.

This operation at Delta’s facility took place on the weekends. Sparks, Conte owner Tania Conte and Conte employees would drive up from Oklahoma, Iles wrote, and up to 20 temporary workers were brought in by Sparks from the St. Louis area.

In August 2022, Sparks applied for an agent ID and submitted an offer of employment from Delta, signed by Herndon, in support of his application. It was denied because he had a disqualifying felony conviction. However, he was later issued an agent ID in June 2023, according to the division, because of a moratorium on FBI criminal background checks after recreational marijuana was legalized in December 2022.

Sparks was in the facility on a regular basis between February through July 2023 and never properly signed in or out of the visitor log, Iles wrote.

“Because Delta had to sponsor Sparks by making a written offer of employment for him to apply for the facility agent card, Delta knew that Sparks’ application for an agent card had been denied and the reason for it,” Iles wrote. “Because Sparks was central to the efforts of Delta to create the bulk distillate and Conte products, we conclude Sparks and Delta intentionally kept his name from appearing on the visitor log.”

The temporary workers Sparks hired also only wrote their first names in the log and didn’t include the purpose for being in the facility or times they were there.

“As with Sparks’ failure to sign the visitor log, we conclude this non-compliance was intentional,” Iles wrote. “Neither Sparks nor Tania Conte could identify the individuals who were doing the work. They were paid in cash and Sparks was vague on how or where he found the workers. For its part, Delta simply turned its facility over to SND and Conte for the weekends and did nothing to identify who was in the facility or monitor their compliance with the security requirements.”

Before May 2023, the unregulated THC-A oil Sparks was bringing into the Delta facility came from Sparks’ network of personal associates.

“Sparks believed it was derived from hemp,” Iles wrote.

Illes focused on what was produced between February 3, 2023—when the initial recreational marijuana rules were in place—and August 2023.

The THC basics

To understand Delta’s alleged violation, Iles said it is necessary to first understand “the basics.”

The psychoactive chemical that produces the high consumers look for in marijuana products is tetrahydrocannabinol, otherwise known as THC.

“THC does not occur naturally in either the marijuana plant or the hemp plant,” she states. “THC-A does.”

THC-A is found in large amounts in marijuana plants and smaller amounts in hemp plants. By itself, it’s not intoxicating.

For example, if you eat a raw cannabis bud, you shouldn’t get high because the THC-A has not been heated yet, through a process called decarboxylation. That happens when you light a joint or bake pot brownies.

The THC-A oil used at Delta was extracted from hemp plants by sources outside Missouri, Iles wrote, not by Delta or Sparks in the Delta facility.

The oil was converted into THC before products were sold, she said. And that’s a major reason it violates state rules.

“It was not resold as THC-A,” she states.

Delta believed the company was compliant as long as “a single gram of THC sourced from a marijuana plant obtained from a licensed Missouri cultivator is included in a batch of product that might contain hundreds or thousands of grams of psychoactive THC” that come from hemp plants.

“This interpretation is unreasonable,” Iles wrote.

In a lawsuit filed last year, Sparks’ group SND claimed Delta owes the company more than $13 million for producing about 1,100 liters of THC concentrate oil, or distillate, and other products. That’s almost 80 million 10 mg doses—or twice that amount if they’re 5 mg THC gummies.

A liter of 80 percent concentrated THC can make more than 70,000 individual gummies at 10 mg THC a piece, industry experts say.

The company is also asking for $5 million in loss of revenue, after the state confiscated its extraction equipment that was inside Delta’s facility for five months.

SND has agreed to enter into arbitration, and a hearing is scheduled for that case next month in Franklin County Circuit Court.

This story was first published by Missouri Independent.

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Photo courtesy of Kimzy Nanney.