By Karen Morfitt
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DENVER, Colorado (KCNC) — State regulators are putting Colorado’s marijuana industry on notice.
They’re warning bad actors who are bringing hemp‑derived, often chemically-altered products into the state’s legal marijuana system that there will be consequences.
Regulators say they’re seeing the practice more frequently, putting public health at risk while also costing the state tax revenue. Exactly how much money is being lost, however, remains unclear.
CBS Colorado Investigator Karen Morfitt began looking into the issue last fall after federal agents swarmed a warehouse on the northern edge of Denver.
“You will see people in clan lab uniforms on the site; they are there to assess and address any potential hazardous threats,” one federal official told members of the media in November 2025.
The facility targeted by the Drug Enforcement Administration and the Environmental Protection Agency belonged to Hau Processing.
The company is legally allowed to produce a variety of hemp‑derived products, including synthetic THC, as long as those products are shipped out of Colorado and sold elsewhere.
The company has past citations from the EPA for exposing staff to methylene chloride, a toxic chemical commonly used in paint thinner known to increase cancer risk.
Methylene chloride can also be used to chemically convert hemp into THC.
The same owner also operated a marijuana business called Ware Hause Cannabis. In 2024, its products were recalled after state regulators discovered vape cartridges contained illegal pesticides and methylene chloride.
A tainted supply chain can put other companies at risk. CBS Colorado visited a local Denver company following the rules.
“We ask for a (certificate of analysis). It ensures the potency we’re looking for, but also that there are no contaminants — no yeast, no molds,” Mark Krieger, general manager of The Clear Brands, said.
Inside the facility, cannabis material is weighed precisely, processed, and rolled by specialized machinery.
The equipment, which rolls double‑ended joints and cuts them into individual one‑gram products, produces thousands of joints a day.
The machine, unique in Colorado, costs nearly $300,000 — an example of what operators call “the cost of hypercompliance.”
“You should see this type of compliance in every manufacturer,” Krieger said. “We like to play by the book.”
Rich Batenburg, founder and CEO of The Clear Brands, says competitors who skirt the rules gain an unfair advantage.
“I can’t compete with somebody who is skirting the rules,” Batenburg said.
He said suspiciously cheap or unusually available materials in a tight market are red flags.
“When a supplier shows up with something that is dramatically less expensive or abundantly available in a constricted market, it’s a ‘buyer‑beware’ situation,” he said.
What appears to be standard distillate — liquid THC refined from cannabis flower — may not always be what it claims to be.
Recent testing on distillate from one of their potential suppliers showed high levels of delta‑8 THC, a sign that it was likely converted from hemp; products that shouldn’t be in Colorado’s marijuana market.
“That is not natural. I shouldn’t be seeing that in any kind of compliant distillate derived from cannabis alone,” Compliance/Lab Director, Alex Wiggans, said. “I rejected that oil. We did not buy it.”
Every one of their products starts as a plant and is tracked at each step through the state’s seed‑to‑sale system, known as the MED Marijuana Inventory Tracking System or METRC, before reaching consumers.
“There are literally tens of thousands of records going into that system every day,” Batenburg said.
When the data doesn’t add up, regulators and industry leaders say it can signal two potential problems: tax evasion or illegal products being laundered into the legal market.
“To describe it as ‘laundering’ is probably a good analogy,” Batenburg said. “It’s certainly provocative — and probably dead on.”
The alleged scheme is known as inversion. Operators enter marijuana waste into the tracking system, discard it, then replace it with cheaper, sometimes chemically-altered, hemp‑derived product.
The practice contaminates the legal supply chain, threatens public health, and erases tax liability, industry insiders and officials say. Money meant for schools, roads, and community programs never reaches its destination.
“There was a lot of price compression,” said Chuck Smith, CEO of Colorado Leads, a nonprofit cannabis trade group. “People were saying, ‘I know how much it costs to grow a pound of cannabis and make a product — how can others be making money at those prices?’ The math just doesn’t math.”
Smith said the risks of inversion are clear.
“First and foremost, there’s a potential threat to public safety for consumers and patients,” he said. “Second, it hurts all the good actors who are trying to play by the rules in an already difficult industry.”
State regulators say they’ve investigated this type of activity before.
“It is serious,” said Dominique Mendiola, director of the Colorado Marijuana Enforcement Division. “It involves a pattern of conduct that we see as highly problematic.”
In mid-April, the agency issued a public bulletin warning the industry about compliance issues that pose “serious risks to public safety, market integrity and the tax revenue framework supporting Colorado’s regulated marijuana industry.” Mendiola said the agency is focused on prevention as much as enforcement.
“It’s not just about catching activity that’s occurring. It’s about being proactive and doing everything we can to prevent these risks from being introduced,” she said.
Changes to the state’s testing requirements are scheduled to take effect this summer, allowing regulators to require specific tests designed to better detect inversion.
Businesses that cannot explain discrepancies could face product holds, license suspension, or criminal investigation.
“These systems are in place to protect the integrity of the industry and ensure safe products,” Smith said. “Colorado has the most rigorous regulatory framework in the country, and we need to protect that.”
CBS Colorado’s investigation into the issue started with that raid on Hau Processing. Thanh Hau is the owner of that facility as well as Ware Hause Cannabis.
Nearly 20 years ago, Hau was indicted on 59 counts related to drug trafficking and money laundering. He later pleaded guilty to two federal counts of conspiracy to distribute marijuana.
He was later allowed to apply for a social equity license and legally sell marijuana in Colorado.
Following the state recall, Hau surrendered that license.
CBS Colorado attempted to reach Than Hau for comment. He declined.
For companies following the rules, the state’s crackdown is welcome — though many question the timing.
“I’m happy they’re here,” Batenburg, of The Clear Brands, said. “You could argue, ‘what took so long?’ But that’s crying over spilled milk. They have a plan, and it will get better going forward.”
A recent state health department inspection report obtained by CBS Colorado says samples taken from Hau Processing in November showed some of its products did not come from hemp at all and were entirely chemically manufactured, a practice not allowed in Colorado.
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