In a motion filed in Denver District Court, Mallen’s lawyer, Lauren Davis, contended the state provided “no basis in law or fact” in making a case for illegal ownership.
The motion said the state had a few reasons for its suspicion: Some employees were paid a flat fee per items produced instead of an established or hourly salary; checks were made out to an entity instead of an individual; and a supplier of sugar, flour and similar items was not licensed or an applicant.
Davis said none amounted to ownership, and she challenged the state’s legal interpretation of what constitutes ownership.
A judge denied the motion, and the state and Mallen settled for terms that have not been publicly disclosed.
Map: Colorado recreational marijuana shops and medical dispensaries
The state’s financial investigation also involved another employee, Raymond Barker. In March 2012, Barker, Green Sky’s then-manager, was arrested and charged with driving under the influence, state records show.
Neither Barker nor Green Sky reported the arrest and pending charge to regulators, as required, the state said. According to Mallen’s lawyer, Barker was fired in late 2013 and had no ownership stake.
Barker declined to comment for this story.
Mallen acknowledged an “oversight” in the structuring of his business arrangement with his former employee. Barker ran a division of Green Sky and was involved in a brand called Twice Baked, Mallen said. At the end of the year, Barker was paid by getting a percentage of the profits, Mallen said.
“That was a mistake,” Mallen said.
Wrapped in colorful labels
At the kitchen on Morrison Road, workers with black Cheeba Chews shirts and matching caps stirred cannabis extract from small corked bottles into a baking dish layered with creamy chocolate.
After the all-organic-infused chocolate came out of the oven, it was sliced and wrapped in colorful labels.
The products included the flagship Cheeba Chews, Green Hornets and mint-flavored Dabba Chocolate bars.
In a March article, High Times Magazine called Cheeba Chews “far and away” the most successful medical marijuana edible company in the country.
That same month, regulators shut down the kitchen.
“The license holder had obligations and failed in those obligations,” said Leslie, Cheeba Chews’ marketing director. “He learned a very good lesson.”
Leslie said Cheeba Chews controlled branding and manufacturing.
Neither Leslie nor Mallen would discuss details of the licensing agreement. Typically, such agreements involve the licensor granting the licensee the right to produce and sell goods, or apply a brand name or trademark.
Cheeba Chews sought a licensing deal rather than its own infused-products license because it made it easier to deploy in multiple states, Leslie said. The company also has agreements to distribute in California and Washington state, he said.
Leslie described Cheeba Chews as a small business that puts the spotlight on the product and not its people. He said the sole owner, Howler, is “hands-off” and private.
In media interviews, Howler has described himself as a 31-year-old Boulder resident who legally produced hash from his medical marijuana grows and sold it to “compassion clubs” before starting Cheeba Chews.
The Post attempted to contact Howler by e-mail and received a response referring questions to Leslie. Leslie said Howler does not give interviews and answered previous media questions by e-mail.
A search of public records found no evidence of a James Howler living in Colorado. And no James Howler is licensed with the state Marijuana Enforcement Division.
A man named John Gardner filed articles of incorporation for Cheeba Chews LLC in 2011 with the Colorado secretary of state. The records identify Cheeba Chews’ registered agent as Earthwise. Gardner, in turn, is identified as Earthwise’s registered agent.
Both entities list the same mailing address — a mailbox at a UPS Store in Boulder.
Asked about Gardner, whom The Post was unable to locate or contact, Leslie said: “I think he may be a silent partner who came on at some point. I am not too familiar with the guy. He has not been active in the business.”
Cheeba Chews operations manager Dave Maggio is better known among local marijuana industry people. Maggio was a Green Sky employee dating to at least June 2012, according to Mallen’s lawyer. But according to state officials, Maggio first applied for and received a state license to work in the industry in January of this year.
Leslie said Maggio applied by mail in 2012. Processing delays occurred, Leslie said, and Maggio scheduled an appointment as soon as he could.
Handling of application
Mallen expressed frustration with the state’s handling of his application. His court motion said he paid thousands of dollars in license and applications fees while awaiting his fate and said his attempts to communicate with state regulators largely were ignored.
Mallen said he took several steps, including hiring a former top state marijuana regulator as an independent auditor.
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The notice of denial was delivered March 28 — more than a year after Mallen’s kitchen was inspected.
“You sit there, and you’ve got 20 different violations,” Mallen said. “I’m not making excuses. I’m saying fine, some are legit. But we corrected it. We did everything we had to. We were as compliant as anyone in the market.”
Natriece Bryant, a spokeswoman for the Marijuana Enforcement Division, said follow-up on the initial inspection may have been delayed because of staffing shortfalls — at the time, 18 people were doing the work of 55. She also pointed to the complexity of such cases.
Jeff Gard, a Boulder lawyer who represents marijuana businesses and has no connection to the case, reviewed public records at The Post’s request and said the state was forced to act.
“The most concerning thing was, essentially, this business was truly a set of businesses holding itself out to be a single business,” Gard said. “If it quacks like a duck, it is a duck. You don’t get to rename it and retitle it and call it a licensing agreement.”
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Lewis Koski, director of the Marijuana Enforcement Division, said license holders must disclose licensing agreements so regulators can determine whether they amount to ownership interests. Agreements vary widely, he said.
“The devil is really in the details in these kinds of situations,” he said.
If someone is getting paid a percentage of the profit, Koski said, that would “likely trigger a licensing event” — or possible enforcement action.
Mallen said the state was “trying to close us down” from the start. “They wanted to show your newspaper and the state of Colorado that they’re taking action, not everyone is getting licensed, we pulled down the biggest company,” he said.
Koski said that is not the case.
“We’re taking each case on a case-by-case basis on the merits of those cases, without respect to the size of the company or anything like that,” he said.
Mallen and Cheeba Chews have gone their separate ways.
And the brand that calls itself “America’s favorite edible” is about to return.
Leslie said the company has reached a new licensing agreement with another infused-product license holder. He said Cheeba Chews has been cooking in its new kitchen for the past few weeks. Dispensaries are beginning to advertise the edibles’ return.
Leslie would not identify the license holder or discuss details of the deal’s structure except to say it’s “a little bit different” than the previous one.
He said Cheeba Chews is working closely with the Marijuana Enforcement Division to make sure it complies with regulations — including turning over a copy of its new licensing agreement.
Eric Gorski: 303-954-1971, egorski@denverpost.com or twitter.com/egorski
