Disregard, a campout and log back in resolved the issue. The hammer respawned in my inventory.
The quest works on second try.
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I have retired from the cap making game.
Teddee Bearfoot - 60 Halfling Warrior
Hehateme - 60 Iksar Monk
Freddee Bearfoot - 60 Halfling Druid
Spooee Bearfoot - 60 Halfling Cleric
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