In California, It’s U.S. vs. State Over Marijuana - NYTimes.com

He brought graduate-level business skills to a world decidedly operating in the shadows. He hired accountants, compliance lawyers, managers, a staff of 75 and a payroll firm. He paid California sales tax and filed for state and local business permits.

But in a case that highlights the growing clash between the federal government and those states that have legalized marijuana for medical or recreational use, the United States Justice Department indicted Mr. Davies six months ago on charges of cultivating marijuana, after raiding two dispensaries and a warehouse filled with nearly 2,000 marijuana plants.

The United States attorney for the Eastern District of California, Benjamin B. Wagner, a 2009 Obama appointee, wants Mr. Davies to agree to a plea that includes a mandatory minimum of five years in prison, calling the case a straightforward prosecution of “one of the most significant commercial marijuana traffickers to be prosecuted in this district.”

At the center of this federal-state collision is a round-faced 34-year-old father of two young girls. Displaying a sheaf of legal documents, Mr. Davies, who has no criminal record, insisted in an interview that he had meticulously followed California law in setting up a business in 2009 that generated $8 million in annual revenues. By all appearances, Mr. Davies’ dispensaries operated as openly as the local Krispy Kreme, albeit on decidedly more tremulous legal ground.

“To be looking at 15 years of our life, you couldn’t pay me enough to give that up,” Mr. Davies said at the dining room table in his two-story home along the San Joaquin River Delta, referring to the amount of time he could potentially serve in prison. “If I had believed for a minute this would happen, I would never have gotten into this.

“We thought, this is an industry in its infancy, it’s a heavy cash business, it’s basically being used by people who use it to cloak illegal activity. Nobody was doing it the right way. We thought we could make a model of how this should be done.”

His lawyers appealed this month to Attorney General Eric H. Holder Jr. to halt what they suggested was a prosecution at odds with Justice Department policies to avoid prosecutions of medical marijuana users and with President Obama’s statement that the government has “bigger fish to fry” than recreational marijuana users.

“Does this mean that the federal government will be prosecuting individuals throughout California, Washington, Colorado and elsewhere who comply with state law permitting marijuana use, or is the Davies case merely a rogue prosecutor out of step with administration and department policy?” askedElliot R. Peters, one of his lawyers.

“This is not a case of an illicit drug ring under the guise of medical marijuana,” Mr. Peters wrote. “Here, marijuana was provided to qualified adult patients with a medical recommendation from a licensed physician. Records were kept, proceeds were tracked, payroll and sales taxes were duly paid.”

Mr. Holder’s aides declined to comment, referring a reporter to a letter from Mr. Wagner to Mr. Davies’s lawyers in which he disputed the depiction of the defendant as anything other than a major-league drug trafficker.

“Mr. Davies was not a seriously ill user of marijuana nor was he a medical caregiver — he was the major player in a very significant commercial operation that sought to make large profits from the cultivation and sale of marijuana,” the letter said. Mr. Wagner said that prosecuting such people “remains a core priority of the department.”

The case illustrates the struggle states and the federal government are now facing as they seek to deal with the changing contours of marijuana laws and public attitudes toward the drug. Colorado and Washington legalized marijuana for recreational use last year, and are among the 18 states, and the District of Columbia, that currently allow its medical use.

Two of Mr. Davies’s co-defendants are pleading guilty, agreeing to five-year minimum terms, to avoid stiffer sentences. Mr. Davies, while saying he did not “want to be a martyr,” decided to challenge the indictment with a combination of legal and public-relations measures, setting up a Web site devoted to his case and hiring Chris Lehane, a hard-hitting political consultant and former senior aide in Bill Clinton’s White House.

Among Mr. Davies’s advocates here in California are Paul I. Bonell, who was the president of the Premier Credit Union for 21 years before Mr. Davies hired him in early 2011 to oversee his businesses’ fiscal controls. After the businesses were raided in October that year, Mr. Bonell took a position as the head of the Lodi Boys and Girls Club.

“I had some reservations going in,” he said of Mr. Davies’s enterprise. “But the industry was exploding. Matt wanted to have internal controls in place. And we thought: This was a legitimate business. If the State of California deems it legitimate, we want to be the best at it.”

Mr. Davies’s accountant, David M. Silva, said he set up spreadsheets to keep track of inventories, revenues and expenses. “I’ve been a C.P.A. for 30 years,” Mr. Silva said. “What I saw was a guy who was trying to run an operation in an up-and-up way.”