Find a seed pouch on minotaurs and a mana stone dropped by the troll Grott, then speak to Bane Gwengad, who will give you the dagger when you say the word ingredient.

Note: You must have completed the Audience with Bane quest in order to speak to him.
Reward:

• Blood Dagger
  * 5,000 XP
  

You can complete this quest at will.