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United States v. Mallory

United States District Court, S.D. West Virginia, Huntington Division

March 6, 2019

MATTHEW MALLORY, ALTERNATIVE MEDICINAL OPTIONS LLC, GARY KALE, GRASSY RUN FARMS, LLC, their agents, assigns, attorneys, and all other acting in concert with the named defendants, Defendants.



         Pending before the Court are Motions to Dismiss by Defendants Matthew Mallory (Mr. Mallory) and Commonwealth Alternative Medicinal Options, LLC (collectively the “CAMO Defendants”) and Gary Kale and the Grassy Run Farms, LLC, (collectively the “Grassy Run Defendants”). ECF Nos. 28 & 34. The CAMO Defendants also have filed a Motion for Leave to File Supplemental Authority (ECF No. 51), and the United States has filed a Motion for Leave to File an Amended Verified Complaint for Declaratory Relief. ECF No. 48. For the following reasons, the Court GRANTS the motions to dismiss, GRANTS the motion to file supplemental authority, and DENIES the motion to amend.



         The United States brought this action on September 11, 2018, seeking an Ex Parte Temporary Restraining Order (TRO) and Preliminary Injunction, with the ultimate goal of securing a Permanent Injunction and other relief. With respect to the TRO, the Court GRANTED the motion and scheduled a preliminary injunction hearing for September 17, 2018. In the meantime, the TRO prevented the CAMO Defendants and the Grassy Run Defendants from, inter alia, harvesting and transporting certain cannabis plants across state lines.

         The cannabis at issue in this case was grown under an “industrial hemp” pilot program in West Virginia. At the time, “industrial hemp” was defined as “the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration [(THC)] of not more than 0.3 percent on a dry weight basis.” 7 U.S.C. § 5940.[1] Mr. Mallory, using the business name CAMO HEMP WV LLC, applied for and received a Research and Marketing Cultivation of Industrial Hemp License from the West Virginia Department of Agriculture (WVDA) to grow the plants. The seeds used by Defendants were purchased from a supplier in Kentucky[2] and shipped directly to Grassy Run Farms in West Virginia. The seeds were then planted and grown on property located in Mason County, West Virginia. The United States claims the property is owned by Grassy Run Farms, LLC, and Gary Kale is an employee of that company.

         In its Verified Complaint, the United States alleges Defendants conspired together to violate the law with respect to the project, and they failed to follow the project description submitted by the CAMO Defendants to the WVDA. Specifically, the United States argues that Defendants violated the Controlled Substances Act (CSA), 21 U.S.C. § 801 et seq., when they obtained the cannabis seeds from Kentucky. Additionally, the United States asserts Defendants will continue to violate the CSA if, as intended, they transport harvested portions of those plants to Pennsylvania.

         Upon hearing the parties' arguments, the Court converted the TRO into a preliminary injunction. The Court allowed Defendants to harvest, dry, and process the cannabis, but the Court prohibited Defendants from transporting or selling it after it was processed.[3] The harvesting, drying, and milling process took several weeks to complete. In the interim period, the parties filed and briefed the current motions. However, as a result of a lack of congressional appropriations, civil cases in this District with the United States as a party were stayed on December 26, 2018. Gen. Order Holding Civ. Matters in Abeyance, Misc. No. 2:18-mc-00196 (Dec. 26, 2018) (Berger, J.).[4]

         The CAMO Defendants then moved to lift the stay because they had a time-sensitive contractual obligation to deliver cannabidiol (CBD) isolate, a hemp extract, by the end of January 2019. The CAMO Defendants represented to the Court that they had to take the plant material to a facility in Pennsylvania to be processed in order to fulfill the contract. Given that the passage of time had changed the circumstances of the CAMO Defendants because of the looming contractual deadlines, and the fact the Court had become increasingly doubtful as to the merits of the United States' case, the Court lifted the stay and exercised its inherent authority to dissolve the preliminary injunction.[5] The Court permitted Defendants to immediately transport the product to Pennsylvania to be processed into CBD isolate. Now, upon consideration of the merits of Defendants' motions to dismiss, the Court rules in their favor.



         The facts essential to resolving the current motions are not in dispute. Although the Court herein considers several documents submitted by the parties, no party has challenged the authenticity of these documents and many of them are attached and integral to the Verified Complaint. Of those the Court references that are not attached to the Verified Complaint, almost all are public records. The only documents the Court mentions that do not fit into one of these categories is a handout by CAMO and three letters. The handout by CAMO was submitted by the United States to support its argument. However, the Court finds that this handout does nothing to change this Court's legal analysis, and the Court does not rely upon it. With regard to the letters, two are from Jennifer S. Greenlief dated September 11 and 14, 2018, and the other is from Mr. Mallory dated September 21, 2019. As is explained below, the letters also do not change this Court's legal conclusions. They are merely cited to provide background information. Therefore, as the Court finds that all the documents it does rely upon are either integral to the Verified Complaint or a public record, the Court will not convert Defendants' motions into ones for summary judgment and will consider them under the motion to dismiss standard.

         Pursuant to the dismissal standard, courts must look for “plausibility” in the complaint. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563-64 (2007). In other words, the United States in this case must set forth the “grounds” for an “entitle[ment] to relief” that is more than mere “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555 (internal quotation marks and citations omitted). Accepting the factual allegations in the Verified Complaint as true, they “must be enough to raise a right to relief above the speculative level . . . .” Id. (citations omitted). If the allegations in the complaint, assuming their truth, do “not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court.” Id. At 558 (internal quotation marks and citations omitted). In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court explained that, although factual allegations in a complaint must be accepted as true for purposes of a motion to dismiss, this tenet does not apply to legal conclusions. 556 U.S. at 678.



         The fundamental question this Court must resolve is a legal one, that is whether Defendants violated any federal laws in procuring, cultivating, processing, or selling the cannabis at issue. Under the CSA, controlled substances are divided into five schedules. 21 U.S.C. § 812(a). Schedule I substances, which includes marijuana, are the most tightly controlled. Id. at § 812(b)(1). The CSA expressly prohibits the manufacture, distribution, or disbursement of a Schedule I controlled substance without a Drug Enforcement Administration (DEA) registration. Id. at §§ 822, 823, 841(a). Notably, at the time this action was brought, the CSA defined “marihuana” as including “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.” 21 U.S.C. § 802(16). CBD is a derivative product of the Cannabis sativa L. plant.

         In 2014, Congress passed the Agriculture Act of 2014, Pub. L. 113-79, title VII, § 7606 (codified at 7 U.S.C. § 5940 (2014) (the “2014 Farm Bill”)). As part of the Act, Congress carved out a special exception to the CSA under certain circumstances, for the domestic growth, cultivating, and marketing of industrial hemp. This exception, set forth in 7 U.S.C. § 5940(a) provided:

(a) In general Notwithstanding the Controlled Substances Act . . . or any other Federal law, an institution of higher education . . . or a State department of agriculture may grow or cultivate industrial hemp if--
(1) the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research; and
(2) the growing or cultivating of industrial hemp is allowed under the laws of the State in which such institution of higher education or State department of agriculture is located and such research occurs.
7 U.S.C. § 5940(a) (2014). Thereafter, an “agricultural pilot program” is defined as:
a pilot program to study the growth, cultivation, or marketing of industrial hemp--
(A) in States that permit the growth or cultivation of industrial hemp under the ...

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