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The 17-year-old, from Norton, was stopped on Parliament Street by officers from Stockton’s response unit and subsequently searched.
This led officers to find an amount of cash and drugs which were seized.
He was then arrested on suspicion of possession with intent to supply class A drugs and taken to police custody to be interviewed.
While the teenager was being questioned, officers were searching a property on Leven Road in Norton and recovered an offensive weapon.
Enquiries are ongoing while the teenager has been released on conditional bail.
Inspector Christian Duree, of Stockton’s response unit, said: “While proactively patrolling the Stockton area officers stopped the teenager who they believed could be involved in the supply of drugs.
“This resulted in a quantity of drugs including ecstasy and crack cocaine and money being recovered but also led to further searches at a property and a knuckleduster being seized.
“I would like to take this opportunity to encourage anyone who has information on individuals suspected of being involved in the supply of drugs to get in touch with police.
“You can this either by calling 101 or visiting our website.
“If reticent to come forward then information can also be provided anonymously by calling Crimestoppers on 0800 555 111.”