Company at center of Missouri marijuana recall faces $20 million lawsuit

(Rebecca Rivas/Missouri Independent)

Delta Extraction, the Robertsville-based marijuana manufacturer at the center of Missouri’s massive product recall last year, is being sued for nearly $20 million in unpaid invoices and loss of revenue by a former contractor.

SND Equipment Leasing is a Missouri company that created the THC concentrate oil that led to regulators’ decision to pull more than 60,000 marijuana products off the shelves in August and revoke Delta Extraction’s manufacturing license in December.

SND claims Delta Extraction owes the company more than $13 million for producing about 1,100 liters of THC concentrate oil, or distillate, and other products, according to the company’s lawsuit filed in Franklin County last month.

A liter of 80% concentrated THC can make more than 70,000 individual gummies at 10mg THC a piece, industry experts say . That’s almost 80 million doses — or twice that amount if they’re 5mg THC gummies.

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

SND’s attorney Joy Primoli told The Independent Tuesday that Delta Extraction contracted SND to do a job, and it was Delta’s responsibility as the licensee to make sure the work was in compliance with marijuana regulations. SND had no authority to communicate directly with regulators, she said.

Three-day hearing reveals behind-the-scenes details of Missouri marijuana recall

Primoli likened the situation to a homeowner contracting a business to paint the house green, and then the homeowners’ association saying the color doesn’t meet regulations. The contractor should still get paid for the work, she said.

“It doesn’t matter what the state says or if it was within compliance or not,” Primoli said, “they still contracted with SND to produce a product.”

In March, Delta Extraction argued against the recall and its license revocation before the Administrative Hearing Commission. A decision in the appeal is still pending.

Hundreds of documents were filed in this case, including eight-hours of testimony by SND owner Jason Sparks, who primarily works in Oklahoma’s cannabis market.

However, the lawsuit is the first glimpse at the estimated damages Sparks’ company incurred over his business agreement with Delta Extraction.

A spokesperson for Delta declined comment as the company awaits a decision on its appeal by the Administrative Hearing Commission.

When Sparks first began working with Delta in early 2022, he was making the distillate only for the marijuana brand Conte, a Oklahoma-based company.

Sparks’ wife, Tania Conte, owns Conte. As an out-of-state company, Conte can only make its products at a Missouri licensed manufacturing facility that can legally obtain marijuana.

But in the spring of 2023, the supply for marijuana distillate was low across the state and Delta contracted with Sparks to make large amounts of distillate that Delta sold to about 100 other Missouri manufacturers. Those manufacturers went on to produce gummies and vapes for their brands, which is why the product recall was so widespread.

Despite Delta calling it the “Conte distillate,” Conte wasn’t involved in that business deal or receiving profits from it, the lawsuit states.

At issue is what’s in the distillate.

Sparks extracted a small amount of THC from Missouri-grown marijuana, which the state heavily regulates. Then he added a large amount THC oil that was extracted from hemp , a product that is completely unregulated.

It’s much less expensive to make distillate from hemp than Missouri-grown marijuana, but Delta’s consumers still paid marijuana prices.

The state argues that any kind of THC must be regulated by the Division of Cannabis Regulation, so any products made from Delta’s distillate were pulled off the shelves because they posed a health risk. Still today, 45,000 products are pending the commission’s decision in Delta’s appeal.

But Delta argues hemp is not a federally controlled substance and the state has no authority to regulate hemp-derived THC products.

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Even further, testimony and evidence revealed during the March appeal hearing showed for the first time that the state was aware of the process SND and Delta were using long before the recall was issued.

The state said Sparks’ testimony validated its concerns of health and safety because he couldn’t recall where he bought the hemp-derived THC oil that he used to make his early distillates in 2022.

However, the distillate that led to the recall was actually made from a different hemp product that Delta and SND began using in May 2023, according to testimony and exhibits in the case. And certified lab results are available for those ingredients, Primoli said.

“…the distillate was tested by Missouri licensed laboratories, as required, at all steps in the distillate creation process,” according to a statement from SND’s attorneys. “To date, there have been zero complaints of health or safety concerns with any products.”

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