<style type="text/css">
  .classic-dropdown .dropdown-content.select-dropdown {
    pointer-events: none;
  }
  .classic-dropdown .dropdown-content.select-dropdown li {
    pointer-events: all;
  }
</style>

<div class="classic-dropdown">
  <select id="organization-input">
  </select>
</div>

<script type="text/javascript">
const select = document.querySelector("select");

const fillSelect = (newOptions) => {
    const options = select.querySelectorAll("option");
    options.forEach((x) => x.remove());
    newOptions.forEach((opt) => {

        const optionElement = document.createElement("option");
        optionElement.innerHTML = opt;
        select.appendChild(optionElement);
    });
    updateSelect();
};

const addViewMoreLink = (e) => {
    const link = document.createElement('div');
    link.innerHTML = 'View more';
    link.addEventListener('click', e => {
        e.preventDefault();
        e.stopPropagation();
        return false;
    })
    const dropdownContent = select.parentNode.querySelector(".dropdown-content");
    dropdownContent.appendChild(link);
}


const updateSelect = () => {
    window.M.FormSelect.init(select, {});
}

window.onload = function() {
    fillSelect(["Option 1", "Option 2", "Option 3"]);
    addViewMoreLink()
}

document.getElementsByClassName('dropdown-content')[0]
</script>

As you have mentioned you want to close dropdown when you click view more and show new options. So it is good that it gets closed when you click it. Now all you need to do is add new options and then trigger a click event on dropdown-trigger so it opens again and show new options. The reason the dropdown didn't get closed when you click outside it is that the body height is equal to it's content height (dropdown container) so you aren't actually clicking on the body. That's why I have set min-height on the body inside css.

const select = document.querySelector("select");

const fillSelect = (newOptions) => {
   const options = select.querySelectorAll("option");
   // options.forEach((x) => x.remove());
   newOptions.forEach((opt) => {
      const optionElement = document.createElement("option");
      optionElement.innerHTML = opt;
      select.appendChild(optionElement);
   });
   updateSelect();
};

const addViewMoreLink = () => {
  const link = document.createElement('div');
  link.innerHTML = 'View more';
  link.addEventListener('click', e => {
    fillSelect(["Option 4", "Option 5", "Option 6"]);
    document.getElementsByClassName('dropdown-trigger')[0].click();
  });
  const dropdownContent = select.parentNode.querySelector(".dropdown-content");
  dropdownContent.appendChild(link);
}


const updateSelect = () => {
  const instances = window.M.FormSelect.init(select, {});
}

document.addEventListener('DOMContentLoaded', function() {
  fillSelect(["Option 1", "Option 2", "Option 3"]);
  addViewMoreLink();
});

body {
  min-height: 100vh;
}

<link rel="stylesheet" href="https://cdnjs.cloudflare.com/ajax/libs/materialize/1.0.0/css/materialize.min.css">

<!-- Compiled and minified JavaScript -->
<script src="https://cdnjs.cloudflare.com/ajax/libs/materialize/1.0.0/js/materialize.min.js"></script>

<select id="organization-input"></select>