[Federal Register: October 22, 2004 (Volume 69, Number 204)]
[Notices]
[Page 62086-62089]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22oc04-107]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 03-05]
Express Wholesale Denial of Application
On September 27, 2002, the Deputy Assistant Administrator, Office
of Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to Express Wholesale (Respondent) proposing to deny
its application for a DEA Certificate of Registration as a distributor
of list I chemicals. The Order to Show Cause alleged in relevant part
that granting the
[[Page 62087]]
application of Respondent would be inconsistent with the public
interest as that term is used in 21 U.S.C. 823(h) and 824(a).
Respondent, through counsel, requested a hearing on the issues
raised by the Order to Show Cause and the matter was docketed before
Administrative Law Judge Gail A. Randall. Following prehearing
procedures, a hearing was held in Oklahoma City, Oklahoma on October
21-22, 2003. At the hearing both parties called witnesses to testify
and introduced documentary evidence. Subsequently both parties filed
Proposed Findings of Fact, Conclusions of Law, and Argument.
On May 18, 2004, Judge Randall issued her Recommended Findings of
Fact, Conclusions of Law, and Decision of the Administrative Law Judge
(Opinion and Recommended Ruling), recommending that Respondent's
application for a Certificate of Registration as a distributor of
listed chemical products be denied. Neither party filed exceptions to
the Opinion and Recommended Ruling and on June 24, 2004, Judge Randall
transmitted the record of these proceedings to the Deputy
Administrator.
The Deputy Administrator has considered the record in its entirety
and pursuant to 21 CFR 1316.67, hereby issues her final order based
upon findings of fact and conclusions of law hereinafter set forth. The
Deputy Administrator adopts, in full, the Opinion and Recommended
Ruling of the Administrative Law Judge. Her adoption is in no manner
diminished by any recitation of facts, issues and conclusions herein,
or any failure to mention a matter of fact or law.
By application dated August 23, 2001, Mr. Terry H. Kim, owner of
Express Wholesale, located at 1913 Dyer Drive, Moore, Oklahoma,
submitted an application for a DEA Certificate of Registration as a
distributor of list I chemicals, seeking authority to distribute
pseudoephedrine and phenylpropanolamine.
List I chemicals are those that may be used in the manufacture of a
controlled substance in violation of the Controlled Substances Act. 21
U.S.C. 802(34); 21 CFR 1310.02(a). Pseudoephedrine and ephedrine are
list I chemicals commonly used to illegally manufacture
methamphetamine, a Schedule II controlled substance. At the time that
Respondent submitted its application for DEA registration,
phenylpropanolamine, also a list I chemical, was a legitimately
manufactured and distributed product used to provide relief of the
symptoms resulting from irritation of the sinus, nasal and upper
respiratory tract tissues, and is also used for weight control.
Phenylpropanolamine is also a precursor chemical used in the illicit
manufacture of methamphetamine and amphetamine. As noted in previous
DEA final orders, methamphetamine is an extremely potent central
nervous system stimulant, and its abuse is a persistent and growing
problem in the United States. See e.g., Direct Wholesale, 69 FR 11,654
(2004); Branex, Inc., 69 FR 8682 (2004); Yemen Wholesale Tobacco and
Candy Supply, Inc., 67 FR 9997 (2002); Denver Wholesale, 67 FR 99,986
(2002).
On February 5, 2002, a DEA diversion investigator conducted a pre-
registration inspection at Respondent's proposed registered location.
It was situated in the residential duplex where Mr. Kim lives. He
indicated he would store the listed chemical products in one-half of
the unit's two-car garage, which did not have an internal secure
storage container.
During the visit, the investigator provided Mr. Kim with a copy of
DEA regulations and reference materials commonly referred to as the
``Red Sheet'' and the ``Green Sheet.'' These documents direct an
applicant's attention to matters involving the diversion of ephedrine,
pseudoephedrine and phenylpropanolamine to the illicit production of
amphetamine and methamphetamine. The investigator additionally
explained the meaning of both notices to Mr. Kim and asked if he had
any questions about the notices.
When asked what products he intended to sell, Mr. Kim mentioned
only Max Brand Pseudo 60 (``Max Brand'') and indicated that Max Brand
would make up 30% of Respondent's overall business. He then asked the
investigator if that was ``too much.'' After the on-site visit, Mr. Kim
called the investigator several times inquiring as to the status of the
application and stated he was losing business and customers because he
could not provide them with the Max Brand product.
Mr. Kim also provided a customer list during the inspection and the
investigator recognized many of the intended customers through her work
on an unrelated criminal investigation during which she had visited 50
to 75 convenience stores in Oklahoma City, Oklahoma and Dallas, Texas.
After being apprised the investigator was having problems confirming
customers on his list, about a month later, Mr. Kim sent a supplemental
list, which was shorter and had some different customers.
The investigator again recognized some of the store names as being
involved with on-going criminal investigations. Several of the
prospective customers were also on lists provided by other distributors
with pending applications or were customers of current registrants. A
significant portion of Respondent's prospective customers were
convenience stores and gas stations.
During a brief follow-up visit on February 20, 2002, the
investigator confirmed that Mr. Kim had now installed a wooden,
padlocked storage container in the garage. The investigator concluded
this would afford adequate physical security for storage of the list I
chemical products.
Respondent's business consists primarily of supplying general
merchandise to convenience stores and gas stations. When he began the
registration application process, Mr. Kim was not aware that
pseudoephedrine was used to manufacture methamphetamine. While Mr. Kim
indicated he was aware of, and willing to abide by all requirements
levied upon a DEA registrant, his testimony at the hearing reflected
uncertainty as to his actual understanding of those requirements.
Mr. Kim did agree to exclude Max Brand from the product list if the
application was granted. He also furnished 48 signed ``form letter''
type statements from owners or representatives of retail outlets in the
Oklahoma City area, indicating they supported Respondent's DEA
registration and would use its products only for legitimate purposes.
Methamphetamine use is a growing problem in the State of Oklahoma
and pseudophedrine and ephedrine are combined with other products to
manufacture methamphetamine. Convenience stores have been the primary
source for the pseudoephedrine and ephedrine used in the illicit
manufacturing of methamphetamine in the Oklahoma City area and some of
these convenience stores are supplied through different wholesale
distributors.
Max Brand Pseudo 60 is the precursor product predominantly
encountered and seized at clandestine methamphetamine laboratories.
Convenience stores are also the primary source for the purchase of the
Max Brand products, which are the preferred brand for use by illicit
methamphetamine producers and users. Large, nationally recognized
chains such as Wal-Mart and Eckerd do not usually carry Max Brand
products. While the record is unclear as to quantity and strength of
products, in
[[Page 62088]]
Oklahoma City, Max Brand typically retailed for approximately $17.00
per bottle while other name brand cold and sinus products such as
Tylenol, typically retailed for approximately $5.00 per bottle.
Although local law enforcement officials in Oklahoma consider Max Brand
the product of predominant concern, other brands have been discovered
at area clandestine laboratories, including Action Brand, Bolt, Equate
and Roxanne.
By declaration, the Government presented an expert witness in the
area of statistical analysis of convenience stores and their sale of
pseudoephedrine. Mr. Jonathan Robbin, a consultant in marketing
information systems and databases, presented his evidence on behalf of
the government as an expert in statistical analysis and quantitative
marketing research. With respect to the expert analysis by Mr. Robbin,
the Deputy Administrator adopts the following findings of fact, as set
forth in Judge Randall's Opinion and Recommended Ruling.
Using the 1997 United States Economic Census of Retail Trade, Mr.
Robbin tabulated data indicating that ``over 97% of all sales of non-
prescription drug products,'' including non-prescription cough, cold
and nasal congestion remedies, occur in drug stores and pharmacies,
supermarkets, large discount merchandisers, mail-order houses and
through electronic shopping. He characterized these five retail
industries as ``the traditional marketplace where such goods are
purchases by ordinary customers.''
Analyzing national sales data specific to over-the-counter, non-
prescription drugs containing pseudoephedrine, Mr. Robbin characterized
convenience stores as a ``nontraditional market'' for the sale of such
products. His research and analysis show ``that a very small percentage
of the sales of such goods occur in convenience stores--only about 2.6%
of the HABC [Health and Beauty Care] category of merchandise or 0.05%
of total in-store (non-gasoline) sales.'' He concluded that
``[c]onvenience stores, therefore, definitely constitute a `non-
traditional' market for the sale of over-the-counter, non-prescription
drug pseudoephedrine products.''
He explained that this information supports DEA's conclusion that
pseudoephedrine products distributed to this nontraditional market
greatly exceeded the normal demand for such products at such retail
outlets. He agreed that such excessive sales could be purchases of
listed chemical products that were diverted to illicit uses.
With respect to Oklahoma wholesale pseudoephedrine sales of several
distributors and over 300 of their retail customers, all of which were
convenience stores, a July 2002 analysis by Mr. Robbin led to the
conclusion ``that without evidence of the existence of immense numbers
of legitimate customers, it was likely that the massive inventories of
pseudoephedrine products purchased by these Oklahoma stores were being
turned to illegal uses.''
In connection with Respondent's prospective customer list, Mr.
Robbin also analyzed data accumulated from prior DEA cases regarding
wholesale sales of pseudoephedrine products to convenience store
retailers in Oklahoma. He found that more than two-thirds of
Respondent's proposed customers had previously acquired ``excessive
amounts of listed chemical products from one or more sources.'' He
further opined that a large number of the stores from Respondent's list
were not ``in the normal or traditional range of expectation in regard
to the stocking and presumed sale of pseudoephedrine (Hcl) tablets.''
Four of the stores show an index of actual purchase rates of
pseudoephedrine tablets in excess of 100% over the expected purchase
rate. One store purchased a quantity valued at 208.9% over the expected
legitimate purchase rate for such products. Given the small size of
most convenience stores and the normal purchases of legitimate
customers, Mr. Robbin concluded that ``[s]uch values are not possible
in the normal commerce of these goods * * *''
He also concluded that the data pertaining to Respondent's proposed
customer list indicates Respondent ``will predominantly serve retailers
who already acquire excessive amounts of product from multiple
sources'' and that Mr. Robbin's analysis clearly showed Respondent
would not be selling listed chemical products to the traditional market
for such over-the-counter drug products.
Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an
application for a Certificate of Registration if she determines that
granting the registration would be inconsistent with the public
interest as determined under that section. Section 823(h) requires the
following factors be considered in determining the public interest:
(1) Maintenance of effective controls against diversion of listed
chemicals into other than legitimate channels;
(2) Compliance with applicable Federal, state, and local law;
(3) Any prior conviction record under Federal or State laws
relating to controlled substances or to chemicals controlled under
Federal or State law;
(4) Any past experience in the manufacture and distribution of
chemicals; and
(5) Such other factors as are relevant to and consistent with the
public health and safety.
As with the public interest analysis for practitioners and
pharmacies pursuant to subsection (f) of section 823, these factors are
to be considered in the disjunctive; the Deputy Administrator may rely
on any one or combination of factors, and may give each factor the
weight she deems appropriate in determining whether a registration
should be revoked or an application for registration denied. See, e.g.,
Direct Wholesale, 69 FR 11,654; Energy Outlet, 64 FR 14,269 (1999);
Henry J. Schwartz, Jr., M.D., 54 FR 16,422 (1989).
The Deputy Administrator finds factors one, four and five relevant
to Respondent's pending registration application.
As to factor one, maintenance by the applicant of effective
controls against diversion, the Deputy Administrator agrees with Judge
Randall that the physical security of the proposed storage arrangement
was adequate. However, DEA has previously held that registrants have a
responsibility to maintain controls against diversion, beyond the
confines of the mere physical security afforded the product. See, OTC
Distribution Co., 68 FR 70,538 (2003).
Judge Randall found the record devoid of any indication that Mr.
Kim had contemplated any measures by which he could ensure that
potential customers would not acquire excessive listed chemical
products that would ultimately be diverted. Lacking any business
practices or systems that would act as a detection system, she
concluded ``Respondent would be unable to effectively monitor
suspicious purchase orders to alert him to the need to inquire as to
the possibility of a proposed illicit distribution of the listed
chemical product, or to alert him to the need to report such illicit
distribution to the DEA.''
The evidence also failed to demonstrate that Mr. Kim grasped the
need for monitoring the packaging of the listed chemical product he
planned to distribute. The Deputy Administrator agrees with Judge
Randall that ``DEA has legitimate concerns if a distributor elects to
sell such bottles of listed chemical product, versus if a distributor
elects to sell such product marketed in small quantity, blister
packs.''
[[Page 62089]]
Accordingly, particularly given Respondent's lack of a plan for a
business monitoring system, factor one weights against registration
As to factors two and three, there is no evidence that Mr. Kim has
any criminal record or evidence that he violated any laws, which weighs
in favor of granting the application.
With regard to factor four, the applicant's past experience in the
distribution of chemicals, the Deputy Administrator agrees with Judge
Randall that the record demonstrates Mr. Kim lacks experience and
knowledge in the distribution of listed chemical products. While he has
offered assurances that he now knows the risks involved in handling
listed chemical products, the absence of an adequate business plan to
minimize the risk to the general public is significant.
In prior DEA decisions, this lack of experience in handling list I
chemical products has been a factor in denying pending applications for
DEA registration. See e.g., Direct Wholesale, 69 FR 11,654 (2004); ANM
Wholesale, 69 FR 11,652 (2004); Xtreme Enterprises, Inc., 67 FR 76,195
(2002). The Deputy Administrator agrees with Judge Randall that this
factor weights against granting Respondent's application for
registration.
With regard to factor five, other factors relevant to and
consistent with the public safety, the Deputy Administrator finds this
factor weighs heavily against granting the application. Unlawful
methamphetamine use is a growing public health and safety concern
throughout the United States and specifically in the State of Oklahoma.
Pseudoephedrine and ephedrine are the precursor products used to
manufacture methamphetamine and users predominantly have acquired the
precursor products needed to manufacture the drug from convenience
stores and gas stations.
The Deputy Administrator specifically concurs with Judge Randall's
finding that Max Brand is the product preferred by illicit
methamphetamine manufacturers and users. Also, while Mr. Kim made a
belated gesture in agreeing to eliminate Max Brand from his product
list, it is only one of multiple precursor products used to manufacture
the drug and the same public interest factors apply to other brands as
well. As recognized by Judge Randall, ``merely declining to sell the
Max Brand product is not enough to outweight the other public interest
concerns that must be taken into consideration here.''
While Mr. Kim has not been involved in the manufacturing of
methamphetamine, the majority of his proposed customers operate
convenience stores and gas stations. As noted by Judge Randall, the
Deputy Administrator has previously found that many considerations
weighed heavily against registering a distributor of list I chemicals
because, ``[v]irtually all of the respondent's customers, consisting of
gas station and convenience stores, are considered part of the grey
market, in which large amounts of listed chemicals are diverted to the
illicit manufacture of amphetamine and methamphetamine.'' Extreme
Enterprises, Inc., supra, 67 FR at 76,197. As in Xtreme Enterprises,
Inc., Mr. Kim's lack of a criminal record, compliance with the law and
a willingness to upgrade physical security are far outweighed by his
lack of experience and his intent to sell ephedrine almost exclusively
in the gray market. Id.
The Deputy Administrator additionally takes notice that after the
hearing on this matter concluded, Oklahoma enacted House Bill 2176,
titled the ``Oklahoma Methamphetamine Reduction Act of 2004.'' Under
this statute, which was signed on and made effective as of April 6,
2004, among its provisions, the sale of pseudoephedrine tables is now
restricted to licensed pharmacies. Accordingly, Respondent's proposed
base of Oklahoma customers in no longer legally viable.
Among the listed chemical products Respondent intends to distribute
is phenylpropanolamine. As did Judge Randall, the Deputy Administrator
also finds factor five relevant to the request to distribute
phenylpropanolamine and apparent lack of safety associated with the use
of that product. DEA has previously determined that an applicant's
request to distribute phenylpropanolamine constitutes a ground under
factor five for denial of an application for registration. See ANM
Wholesale, 69 FR 11,652 (2004); William E. ``Bill'' Smith d/b/a/ B & B
Wholesale, 69 FR 22,559 (2004); Shani Distributors, 68 FR 62,324
(2003).
Based on the foregoing, the Deputy Administrator concludes that
granting the pending application of Respondent would be inconsistent
with the public interest. As discussed by Judge Randall, DEA is
justified in registering only those applicants who grasp the severity
of the problem and understand and can implement controls to stop
diversion of listed chemical products. Notwithstanding the loss of his
customer base as a result of state legislative action, the record here
falls woefully short of establishing that Mr. Kim has the requisite
level of understanding, ability or willingness to establish and
maintain business controls and procedures adequate to prevent diversion
of listed chemical products.
Accordingly, the Deputy Administrator of the Drug Enforcement
Administration, pursuant to the authority vested in her by 21 U.S.C.
823 and 28 CFR 0.100(b) and 0.104, hereby orders that the pending
application for a DEA Certificate of Registration, previously submitted
by Express Wholesale be, and it hereby is, denied. This order effective
November 22, 2004.
Dated: October 5, 2004
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 04-23707 Filed 10-21-04; 8:45 am]
BILLING CODE 4410-09-M