Cannabis regulators to revoke license of Missouri company at center of recall

(Missouri Independent) – The state’s Division of Cannabis Regulation is revoking the marijuana manufacturing license of Delta Extraction after accusing the company of illegally importing “marijuana product” from out-of-state and adding it to Missouri-grown marijuana products.

The revocation will take effect on Dec. 2.

The Robertsville-based company is at the center of Missouri’s massive marijuana recall that was issued on Aug. 14. The state recently rolled back part of the recall, but the fate of more than 45,000 recalled products — and those of dozens of marijuana businesses facing a steep financial loss if the products must be destroyed — is still pending. 

The recall will be debated during a hearing before the Administrative Hearing Commission in December, where Delta’s appeal on its license revocation will also likely be heard.

“We must be clear on this: Businesses that choose to participate in Missouri’s marijuana industry do not get to decide which rules and which parts of [the constitution] they want to follow,” Amy Moore, director of the division, said in a press release Thursday announcing the decision.

Delta Extraction has denied accusations that it illegally imported marijuana into the state by arguing it actually imported a non-psychoactive hemp product, THC-A, that was converted into the psychoactive delta-9 THC once in Missouri. Hemp is not a federally controlled substance.

“The department’s actions are illegal and unfounded,” said Chuck Hatfield, attorney for Delta Extraction. “The issue stems from Delta using legal hemp products in its legal marijuana products, which passed state testing before it was sold to consumers.”

In its appeal, Delta argues that Missouri didn’t specifically ban adding hemp-derived THC-A to marijuana products until the state’s final rules went into effect on July 30.

Hatfield said the division never communicated that adding the hemp product was against the rules until the company’s license was suspended on Aug. 2. 

In an interview with The Independent, Hatfield pointed to an email that Adam Whearty, a compliance team supervisor with the division, sent two days before Delta’s suspension, which was uncovered during the appeals process. Hatfield said it shows that Whearty and compliance officer Heather Bilyeu — who was Delta’s main contact in the compliance office, Hatfield said — were confused about whether what the company was doing was allowed.  

“Heather thinks they found a loophole in the [emergency] rules, prior to 7/30, as does not think THC-A fell into the category of not being able to be used,” until the final cannabis rules took effect on July 30, Whearty wrote. “Heather and I are concerned about what we were to tell [Delta] about modified product in their inventory…”

However, during the appeals process, the state has argued that the emergency rules filed on Jan. 20 prohibited the practice.

Carole Iles of the Administrative Hearing Commission sided with the state in an Aug. 29 order. The only thing the cannabis regulating agency added to this line in the final rules, she wrote, was the clause “such as THC-A …” 

“We agree with the department that language added to the permanent rule … did not change the requirement of the emergency rule that THC in marijuana products could only be derived from marijuana cultivated by a Missouri-licensed cultivation facility,” the order denying a stay on Delta’s suspension states.

A hearing on Delta’s appeal of the recall and license revocation will be held next month.

Delta’s use of the hemp THC-A was not the only reason for revocation, Moore said in the press release Thursday.

“While Delta Extraction’s use of out-of-state cannabis in our regulated system has been well-publicized and is a critical issue, DCR also found numerous other violations of rules at this facility,” Moore said. 

The division also said Delta did not properly maintain video surveillance footage or have the necessary safeguards to prevent intrusion at the facility. The division argues that Delta falsified product tracking records, and regulators could not ensure the product was properly tested. 

In a letter to the state’s attorney on Wednesday, Hatfield countered that the company did test the product in compliance with the law.

Delta also agreed to pay for retesting of any Delta product, Hatfield wrote in the letter, as well as to destroy all the products in its facility in order to reach a settlement with the state. 

“Should the parties not reach an agreement, Delta intends to challenge the Department’s authority to regulate hemp-derived products,” Hatfield’s letter states.

The courts will not entertain a legal challenge against the state until Delta Extraction’s appeal process is completed, a judge has already ruled.

Missouri would then be among several states where companies are challenging the state cannabis regulators’ authority to regulate hemp. Unlike marijuana, hemp has very little psychoactive properties naturally — which is why it was taken off the federal controlled substance list in the 2018 farm bill. 

But since then, businesses have been in a race to create ways to produce the most predominant psychoactive active element in marijuana, delta-9 THC, using the hemp plant. 

On Sept. 8, a federal judge in Arkansas granted a preliminary injunction in a lawsuit against the state, saying that hemp-derived cannabinoids, like THC-A, are protected under the 2018 farm bill. 

“Should Delta succeed in that challenge,” Hatfield wrote, “the industry would be free to engage in bringing in industrial hemp products from out of state for use in marijuana products.”

The violations on which this revocation is based are as follows:

1. The Licensee failed to ensure that all marijuana products sold in Missouri originated from marijuana grown and cultivated in a licensed cultivation facility located in Missouri, which is a violation of 19 CSR 100-1.100(4)(I) and cause for revocation pursuant to 19 CSR 100-1.020(3)(A)3.
2. The Licensee failed to ensure that all tetrahydrocannabinol (“THC”) in marijuana products is derived from marijuana cultivated by a Missouri licensed cultivator, which is a violation of 19 CSR 100-1.170(2)(E) and cause for revocation pursuant to 19 CSR 100-1.020(3)(A)3.
3. The Licensee failed to comply with seed-to-sale tracking requirements and falsified seed-to-sale tracking data, which is cause for revocation pursuant to 19 CSR 100-1.130(2)(E)2.
4. The Licensee failed to ensure all products in its facility are traceable in the statewide track and trace system at all times, which is a violation of 19 CSR 100-1.130(1)(E) and cause for revocation pursuant to 19 CSR 100-1.130(2)(E)2.
5. Due to falsification of tracking data, the Licensee failed to ensure all marijuana products from its facility are compliantly tested before transfer to a dispensary facility, which is a violation of 19 CSR 100-1.170(2)(B) and causes for license revocation pursuant to 19 CSR 100-1.020(3)(A)3.
6. Due to falsification of tracking data, the Licensee also packaged marijuana in a false and misleading manner, which is a violation of 19 CSR 100-1.120(1)(A) and cause for license revocation pursuant to 19 CSR 100-1.020(3)(A)3.
7. The Licensee failed to maintain the security of the marijuana products and the facility by failing to comply with required security measures and failing to maintain required security equipment, which is a violation of 19 CSR 100-1.090 and cause for license revocation pursuant to 19 CSR 100-1.020(3)(A). Specifically:
   • The Licensee did not receive or failed to act upon the failure notification system required by 19 CSR 100-1.090(1)(C)9 that provides notice of a failure in the electronic video monitoring system;
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(A) by failing to have or maintain devices or a series of devices to detect unauthorized intrusion.
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(C)2 by failing to maintain remote access connection.
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(C)3 by failing to have electronic video monitoring of the facility in all required areas. For example, the Licensee was using unapproved areas of the facility, where electronic video monitoring had not been inspected or was non-existent.
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(C)8 by failing to store video camera recordings for at least sixty (60) days in a secure location or through a service or network.
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(D) by failing to have or maintain controlled entry to limited access areas, including maintaining records of entry for at least one (1) year.
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(E) by failing to have a method of immediate, automatic notification to alert local law enforcement agencies of an unauthorized breach of security at the facility.
   • The Licensee failed to comply with 19 CSR 100-1.090(1)(H) by failing to have windows, within the limited access areas, designed to prevent intrusion.
   • The Licensee failed to comply with 19 CSR 100-1.090(2)(E) by failing to take timely action to verify the security of marijuana products and the facility after receiving multiple unauthorized intrusion alarms for the office; office window open/closed, window tamper, office door open/closed, and motion within the office.
   • The Licensee failed to comply with 19 CSR 100-1.030(3)(A)4 (incorrectly cited in the Amended NOPR) and 19 CSR 100-1.090 as the Licensee did not request and receive DCR approval of changes to the use of spaces, which includes using the hallway for storage of marijuana products and using the area designated as the storage room for ethanol extraction. These areas were being utilized by the Licensee without the required notification, inspection, and approval by DCR to determine if the space is in compliance with 19 CSR 100-1, including critical security requirements. This unauthorized use of spaces is cause for revocation pursuant to 19 CSR 100-1.020(3)(A)3.