After police raid, court to decide if intoxicating hemp products are illegal in Arizona (2024)

The recent raid of a Phoenix seller of intoxicating hemp products is poised to test a recent opinion by the state attorney general that such products are illegal in Arizona without a dispensary license.

Hemp growers and retail sellers of intoxicating hemp products are monitoring the legal situation, with one path leading to the expansion of a lucrative industry and another leading to criminal prosecution.

Three days after Attorney General Kris Mayes issued her formal opinion on March 11, Phoenix police served a search warrant on a local business and the Gilbert home of its 29-year-old owner, Thomas Damato. Mayes' opinion sought to ban such products because, she argues, they're illegal under state law "irrespective" of their "arguable federal legality."

Police seized from Damato dozens of pounds of plant material, plus hundreds of concentrated cannabis products like vape pen cartridges. His lawyer has now filed a court motion asking that the items be given back.

Damato's companies purchased legally grown hemp and hemp products, packaged them in their companies' brands, and legally sold them, according to Phoenix cannabis lawyer Tom Dean.

"With the information we have, we know that in fact these products were purchased from a licensed hemp company," said Dean, who's defending Damato.

The consequences of failure to prove their business is legal are high for Damato and his associate, 30-year-old Chandler resident Abel Garcia. Police want prosecutors to charge them with illegally selling, possessing and transporting cannabis extracts, a Class 2 felony that could land them in prison. So far, neither has been charged.

Yet the raid and arrest of Damato and an associate exemplify the ongoing fight. Legal dispensaries want to push back on a burgeoning new industry of intoxicating hemp-derived cannabis products like delta-8 tetrahydrocannabinol, known as delta-8 THC, that aren't subject to the strict regulations created by Arizona's voter-approved marijuana legalization laws.

The Arizona Dispensary Association, made up local dispensary executives, has long opposed the competition it faces from the hemp industry, claiming the industry's products lack quality control and are potentially dangerous. Elected officials on both sides of the political aisle support the association's position, but the hemp industry has powerful friends, too.

Advocates seek to expand legality of hemp products

Despite the legal headwinds, Sully Sullivan, executive director of the Hemp Industry Trade Association of Arizona, is upbeat about the future of hemp-derived products. Restaurants and other beverage sellers or distributors hope to soon see an explosion in sales of cannabis-infused drinks, he said. And he's buoyed by the failure of legislative attempts to kill off the hemp industry this year.

"The Arizona hemp and alcohol industries are gearing up to expand the Arizona hemp market like never before," Sullivan said.

Optimism about the industry also comes with anxiety: While it's true the hemp-killing bills failed, so did bills by hemp advocates state Sen. Sonny Borrelli, R-Lake Havasu City, and Rep. Kevin Payne, R-Peoria. Legislation from the pair of Republicans would have regulated the hemp market and added consumer protections, including a ban on marketing to children.

Borrelli in 2018 sponsored the state law legalizing hemp farming, which was later signed by former Gov. Doug Ducey, a Republican. While stumping for hemp in the last few years, he's repeated the phrase that hemp is about "rope, not dope." But advances in chemistry by entrepreneurs mean hemp, once considered relatively inert, is now a means of getting high.

The most common type of compound made from hemp is cannabidiol, or CBD, which some believe has therapeutic uses. CBD generally contains only trace amounts of the main psychoactive substance in marijuana plants, delta-9 THC, and won't get people high.

But other hemp products will.

The 2018 U.S. Farm Bill spurred innovation like delta-8 THC, and an alphabet soup of other concentrated cannabis formulas. There's hydrogenated THC, known as HHC, and delta-10 THC, both of which reportedly have intoxicating effects. Another compound, delta-9 tetrahydrocannabinolic acid, known as delta-9 THCA, turns into delta-9 THC when heated or burned.

Hemp, under federal and state law, is allowed to contain only 0.3% delta-9 THC. The Farm Bill loophole, which was supported by a 2022 U.S. 9th Circuit Court of Appeals ruling, allows entrepreneurs to isolate and concentrate various trace components of hemp like delta-8 THC, creating new products with concentration levels that don't exist in nature.

Hemp advocates claim it's equally legal to extract the traces of delta-9 THC in hemp and make concentrated delta-9 THC products as potent as anything found in a marijuana dispensary, but that can be sold in gas stations, liquor stores and smokeshops or added to beverages like seltzer water.

In its 2022 opinion, 9th Circuit judges ruled that if Congress "inadvertently created a loophole legalizing vaping products containing delta-8 THC, then it is for Congress to fix its mistake." Congress has not fixed it, instead stalling over disputed provisions of an updated Farm Bill.

Illinois Rep. Mary Miller, a Republican, got an amendment added to the proposed $1.5 trillion Farm Bill last month that would close the loophole, making intoxicating hemp compounds illegal nationally. But it's still unclear if Congress will vote on the new Farm Bill this year, and the status quo is good for hemp sellers and growers.

In Arizona this year, two Republican lawmakers who advanced unsuccessful legislation to close the hemp loophole also asked Mayes if Arizona law permits sales of "intoxicating substances" derived from hemp or CBD. Mayes' answer: The law "explicitly 'excludes any product made to be ingested except food made from sterile hemp seed or hemp seed oil.'"

Police take down wholesale business

The Damato-Garcia case began in October after Phoenix police learned Garcia had allegedly given a flier advertising “hemp THCA flower” for sale to the manager of a liquor store near 20th and Van Buren streets, according to a search warrant affidavit reviewed by The Arizona Republic. Garcia offered “wholesale” pricing, but the manager declined the offer.

Next, an officer set up an undercover buy with Garcia at a Phoenix Starbucks location. Garcia brought a box with jars of buds and vape cartridges to the meeting, telling the officer they produce the same high as “dispensary grade cannabis,” the affidavit said. He presented a card bearing the business names "Hemp Quarters" and "Concrete Concentrates." A catalog he showed off contained a wide range of cannabis products.

Garcia displayed a “Letter to Law Enforcement” to the undercover officer, explaining how the products are legal because they comport with the Farm Bill. Garcia reportedly sold the officer a small assortment of the products for $40. The officer took the samples to a private testing lab to determine their THC level.

To tell whether hemp is not marijuana, according to a widely-distributed May 13 letter by a U.S. Drug Enforcement Administration division chief, the percentage of delta-9 THC must be added to the hemp's level of delta-9 THCA. If the combined total is over 0.3%, it's marijuana, not hemp, the letter states.

The Hemp Quarters samples tested at .85% delta-9 THC and more than 15.56% THCA, for a "total THC" level of 16.41%, essentially the same as dispensary-grade marijuana, the search warrant affidavit says.

In the ensuing investigation, police found Damato's name in business records, located Hemp Quarters' physical office at 1522 East Victory Lane in Phoenix and began a surveillance operation.

The confidential source claimed Damato shipped his products to the Midwest and East Coast, the affidavit said. Unlike under state marijuana laws, however, interstate transport of hemp and hemp products is allowed under the current federal Farm Bill interpretation − as long as the products adhere to the Farm Bill's rules.

Police tracked Garcia as he dropped off products at retail shops in Goodyear and Phoenix, and they later bought "Hemp Quarters" and "Concrete Concentrate" items at the shops.

In the early-morning, March 14 raid of the Victory Lane office, police seized more than 76 pounds of marijuana, hundreds of pre-rolled joints and nearly two thousand vape cartridges. They also seized Damato's 2020 Porsche Panamera and Garcia's 2012 Mercedes sedan and arrested the pair. Police searched Damato's home but apparently found no hemp products there.

"I’m a firm believer that everything we were doing was 100% legit," Damato told The Arizona Republic. "We have our Hemp Quarters sign on the side of the road. We're not hiding back there."

The companies from which he purchased hemp and cannabis concentrates are legal and registered with the agricultural departments in their respective states, something he checked out carefully before working with them, he said. He has hope that with Dean's restoration-of-property motion, "the facts will sort themselves out" and that the business will be up and running again soon.

Legality centers on pre-harvest delta-9 THC percentage, lawyer says

Dean said he is confident the seized products fall under the federal Farm Bill provisions despite the test conducted by police.

The DEA's legal theory about THCA will fail, he predicted, because the test for delta-9 THC percentage is only mandated to occur prior to harvesting. The percentage of delta-9 THC or delta-9 THCA can and does change after harvest, but there's no mandate to test the retail products made "downstream" of the harvest, Dean said.

That means as long as the hemp or hemp products tested at a certain level before their harvest, they're still legal even if the percentages change, he said.

"We have the certificates of analysis that show the delta-9 percentage as being under 0.3%," he said of Damato and Garcia's products.

Mayes' opinion contends that even if the federal Farm Bill loophole is valid nationally, the 2018 state law doesn't contain such a loophole. Still, Dean said the argument will rest on legislative intent and how the Legislature didn't intend to restrict ingested products so tightly, he said.

The Maricopa County Attorney's Office will review the case for possible prosecution. It hadn't commented as of the publication of this story.

Richie Taylor, spokesperson for Mayes' office, said he would check to see if two AG agents who sit on a task force with county attorney staff members recall mention of Mayes' hemp opinion at any meetings.

Phoenix police spokesperson Brian Bower would only confirm the raids occurred March 15. He wouldn't say whether the raid was coordinated in any way with the Attorney General's Office. Detectives will answer any "follow-up concerns" by the county attorney's office, he said.

Reach the reporter at rstern@arizonarepublic.comor 480-276-3237. Follow him on X @raystern.