[Federal Register: March 15, 2005 (Volume 70, Number 49)]
[Notices]
[Page 12729-12732]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15mr05-128]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 03-24]
TNT Distributors, Inc., Denial of Application
On March 31, 2003, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to TNT Distributors, Inc., (Respondent/TNT)
proposing to deny its
[[Page 12730]]
application for a DEA Certificate of Registration as a distributors of
list I chemicals. The Order to Show Cause alleged in substance that
granting Respondent's application to distribute list I chemicals to
what DEA has identified as the ``gray market,'' 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 Mary Ellen Bittner. Following prehearing
procedures, a hearing was held in Nashville, Tennessee on April 20,
2004. At the hearing, both parties called witnesses to testify and
introduced documentary evidence. Subsequently, both parties field
Proposed Findings of Fact, Conclusions of Law, and Argument.
On December 3, 2004, Judge Bittner issued her Opinion and
Recommended Ruling, 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 January 11, 2005, Judge Bittner 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.
On September 11, 2002, Respondent, a Tennessee corporation solely
owned by Ms. Mary Blackard, submitted an application for DEA
Certificate of Registration as a distributor of list I chemicals,
seeking authority to distribute pseudoephedrine, ephedrine and
phenylpropanolamine. Later, Respondent withdrew it request to
distribute 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 which are legitimately manufactured and distributed in
single entity and combination forms as decongestants and
bronchodilators, respectively. Both are used as precursor chemicals in
the illicit manufacture of methamphetamine and amphetamine. As
testified to by government witnesses at the hearing and as addressed 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 8,682 (2004); Yemen Wholesale
Tobacco and Candy Supply, Inc., 67 FR 9,997 (2002); Denver Wholesale,
67 FR 99,986 (2002).
A Special Agent from DEA's Chattanooga, Tennessee Resident Office
testified regarding the rapid proliferation of clandestine
methamphetamine laboratories in Tennessee and its adjoining states and
described prevalent methods of local production. He estimated that 80
to 90 percent of ephedrine and pseudoephedrine being used locally to
manufacture methamphetamine was being obtained from convenience stores
and described the multiple health hazards and social costs stemming
from the production and abuse of methamphetamine. He characterized the
local methamphetamine addiction problem as ``epidemic.''
In the Special Agent's opinion, the bulk of pseudoephedrine and
ephedrine products distributed through local conveniences stores were
being obtained for illicit purposes. While listed chemicals were also
available from local chain drug and discount stores, in his opinion,
when manufacturers obtained precursor products from those
establishments, it was usually done by shoplifting.
Ms. Blackard has worked in a North Carolina veterinary practice for
14 years, where she was responsible for ordering, recordkeeping,
disposal and inventorying controlled substances commonly used by
veterinarians. She then moved to Tennessee and filed incorporation
papers for TNT, which began selling merchandise to independent
convenience stores. As of the date of the DEA hearing, TNT had 66
customers, about 20 of which were in the metropolitan Nashville area.
It primarily sold and distributed tobacco products, some over-the-
counter medications, toys, air fresheners and novelty items.
Ms. Blackard testified she decided to apply for a DEA registration
because her customers wanted listed chemicals and she believed her
company could not compete successfully without offering that product
line. At the hearing she initially testified that list I chemicals
would account for about 15 to 20 percent of TNT's total sales. On
cross-examination she later conceded that ``was just a number I threw
out here.''
In November/December 2002, DEA investigators conducted a
preregistration investigation of Respondent's proposed registered
location, her residence, which was located in a rural area. The agent
conducting the investigation testified Ms. Blackard did not know at the
time that list I chemical products could be used to manufacture
methamphetamine and she thought Mini-Thins, an ephedrine 25 mg,
combination product which she desired to distribute, were used for
``dietary reasons.'' She told the agent that she had no experience with
listed chemicals but did have experience maintaining controlled
substance records. Ms. Blackard provided investigators a list of about
20 proposed customers, most of which were area convenience stores.
The agent who conducted the preregistration investigation testified
Ms. Blackard appeared reasonable and receptive to the information he
provided regarding the dangers of diversion and responsibilities of a
registrant. He also acknowledged that her proposed storage arrangement
complied with DEA regulations.
At the hearing, Ms. Blackard testified she was willing to comply
with DEA requirements and that her recordkeeping practices would be
more stringent than required by regulations. She testified TNT would
maintain a small customer base of around 100 stores, that she would
closely monitor sales and stop selling to any suspicious customers. She
would also take action to enhance the security of products stored at
her residence. While she originally listed Mini Thins among her
intended products, at the hearing Ms. Blackard indicated that if
registration was approved, she would not carry that item and limit
TNT's line to such name brands as Advil Cold and Sinus and Nyquil.
A Supervisory Diversion Investigator from DEA's Nashville office
testified that diversion was a major problem in Tennessee and DEA had
ordered immediate suspensions of several wholesalers who were selling
gray market products to area convenience stores and gas stations. He
observed that once a distributor becomes registered to handle list I
chemicals, it can order whatever chemicals are included in its
registration, including gray market products. In the supervisory
investigator's opinion, once registered, Respondent would likely seek
to
[[Page 12731]]
increase its customer base and, considering the methamphetamine problem
in Tennessee, ``we don't need any more people handling these
products.''
By declaration, the Government introduced evidence regarding
pseudoephedrine sale and the convenience store market from Mr. Jonathan
Robbin, a consultant in marketing information systems and databases,
who is an expert in statistical analysis and quantitative marketing
research.
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
purchased by ordinary customers.
Analyzing national sales data specific to over-the-counter, non-
prescription drugs contain pseudoephedrine, Mr. Robbin's research and
analysis showed 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 determined that the normal expected retail sails of
pseudoephedrine tablets in a convenience store would range between
$10.00 and $30.00 per month, with an average monthly sales figure of
about $20.00 and that sales of more than $100.00 in a month would be
expected to occur in a random sampling about once in one million to the
tenth power, a number he characterized as nearly equivalent to the
number of atoms in the universe. He further stated that the current
convenience store gross margin in the health and beauty care category
is about 40 percent, so that such a store would be expected to spend an
average of $12.00 per month acquiring its inventory of pseudoephedrine
products from a distributor.
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 Whole, 69 FR 11,654; Energy Outlet, 64 FR 14,269 (1999); Henry
J. Schwartz, Jr., M.D., 54 FR 16,422 (1989).
As to factor one, maintenance by the applicant of effective
controls against diversion, the Deputy Administrator agrees with Judge
Bittner that TNT's proposed physical security arrangements were
adequate and that Ms. Blackard had the ability and willingness to
maintain accurate records of the handling of listed chemicals. Judge
Bittner also found Ms. Blackard to be a credible witness and believed
her explanation that she sought registration because other distributors
holding registrations had a competitive advantage over her company and
that Ms. Blackard knew her customers and would not handle products DEA
told her to avoid.
However, Judge Bittner acknowledged existence of a previously
published DEA final order denying registration to an applicant much
like Respondent. Judge Bittner concluded that she was restrained by
that precedent, Xtreme Enterprises, Inc., 67 FR 76,195 (2002). See also
Shop It for Profit, 69 FR 1,311 (2003); William E. ``Bill'' Smith d/b/a
B & B Wholesale, 69 FR 22,559 (2004); Shani Distributors, 68 FR 62,324
(2003) and Branex Incorporated, 69 FR 8,682 (2004). Specifically, Judge
Bittner found Xtreme Enterprises ``virtually indistinguishable'' from
the instant case.
In Xtreme Enterprises, the Deputy Administrator found 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 gray market, in which large amounts of listed
chemicals are diverted to the illicit manufacture of amphetamine and
methamphetamine.'' Xtreme Enterprises, Inc., supra, 67 FR at 76,197.
Based on that case, Judge Bittner concluded that factors one
(maintenance of controls against diversion) and five (other factors
relevant to and consistent with public health and safety), weighed
against granting Respondent's application.
Judge Bittner also concluded Respondent had complied with
applicable Federal, State and local law and had never been convicted of
a crime relating to controlled substances or listed chemicals, thus
finding that factors two and three weighed in favor of registration.
With regard to factor four, the applicant's past experience in
distributing listed chemicals, Judge Bittner found Ms. Blackard had no
previous experience distributing list I chemicals. However, her prior
experience in handling and maintaining records of controlled substances
rendered that factor essentially neutral. The Deputy Administrator
agrees with these conclusions.
Judge Bittner summarized that, ``in light of the decision in Xtreme
Enterprises, Inc., supra, which I regard as controlling, I conclude
that I have no choice but to recommend against granting Respondent's
application.'' However, she went on to state that if the Deputy
Administrator were to decide Xtreme Enterprises was not controlling,
she would recommend that Respondent's application be granted, with
restrictions as to the quantities of ephedrine and pseudoephedrine it
could purchase and sell. The Deputy Administrator declines this
invitation to deviate from sound agency precedent.
Unlawful methamphetamine production and use is a growing public
health and safety concern throughout the United States and specifically
in the State of Tennessee. Pseudoephedrine and ephedrine are the
precursor products used to manufacture methamphetamine and operators of
illicit laboratories in Tennessee predominantly acquire their precursor
chemicals from Respondent's intended customer base. While Ms. Blackard
demonstrated sincerity and intent to avoid contributing to this
scourge, the risks of diversion once listed chemicals leave her control
and enter the gray market are real, substantial and compelling.
The Deputy Administrator therefore concludes Judge Bittner
correctly applied DEA precedent. As in Xtreme Enterprises, Inc., Ms.
Blackard's lack of a criminal record, her previous
[[Page 12732]]
compliance with the law and expressed willingness to comply with
regulations and attempt to guard against diversion are far outweighed
by her intent to sell ephedrine and pseudoephedrine almost exclusively,
in the gray market.
This reasoning has been consistently applied by the Deputy
Administrator in a series of recently published final orders denying
registration to potential gray market distributors. See, Volusia
Wholesale, 69 FR 69,409 (2004); CWK Enterprises, Inc., 69 FR 69,400
(2004); J & S Distributors, 69 FR 62,089 (2004); Express Wholesale,
supra, 69 FR 62,086; Absolute Distributing, Inc., 69 FR 62,078 (2004);
Value Wholesale, 69 FR 58,548 (2004); John E. McRae d/b/a J & H
Wholesale, 69 FR 51,480 (2004).
Based on the foregoing, the Deputy Administrator concludes that
granting Respondent's pending application would be inconsistent with
the public interest.
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 TNT Distributors, Inc., be, and it hereby is, denied. This order is
effective April 14, 2005.
Dated: February 14, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-5069 Filed 3-14-05; 8:45 am]
BILLING CODE 4410-09-M