PORTLAND – State and federal officials have grown wise to a scam that enables penniless food stamp recipients to convert milk into alcohol or cigarettes.

Nine food stamp recipients were caught buying large quantities of Smiling Hill Farm milk and returning the empty bottles a short time later for a cash refund. The heavy glass bottles require deposits of $1.50 or $1, depending on size, which are included in food stamp purchases.

Alcohol and tobacco products are among items for which food stamps are disallowed.

The Hannaford supermarket on Forest Avenue in Portland placed a six-bottle limit on purchases of Smiling Hill Farm milk after several customers were seen buying large amounts of it and then returning a short time later with the empty bottles.

“We became aware it was a serious problem,” Hannaford spokeswoman Caren Epstein told WCSH-TV. “We started hearing from customers and associates in the store that people were purchasing this milk, then were going into the men’s room and dumping the milk out and returning it for deposits. Sometimes it would be the men’s room or the gutter or in front of the store.”

Five of the nine people caught taking part in the scheme have had their benefits revoked; the other four agreed to undergo counseling in order to keep their benefits.

Smiling Hill Farm’s owners said it was insulting to find that people would squander the product of their labor to exploit a loophole in a program intended to help the needy.

Maine’s Department of Health and Human Services and the U.S. Department of Agriculture were looking into the scam.

“Clearly, this is fraud,” said Lynn Kippax, spokesman for the state agency. “Food stamps were for food. They’re not for booze or cigarettes or anything like that.”