[Federal Register: May 10, 2005 (Volume 70, Number 89)]
[Notices]
[Page 24620-24622]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10my05-106]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Jay Enterprises of Spartanburg, Inc.; Denial of Registration
On September 28, 2004, the Deputy Assistant Administrator, Office
of Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to Jay Enterprises of Spartanburg, Inc. (Jay
Enterprises/Respondent) proposing to deny its January 15, 2004,
application for DEA Certificate of Registration as a distributor of
list I chemicals. The Order to Show Cause alleged that granting
Respondent's application would be inconsistent with the public
interest, as that term is used in 21 U.S.C. 823(h). The Order also
notified Jay Enterprises that should no request for a hearing be filed
within 30 days, it hearing right would be deemed waived.
According to the DEA investigative file, the Order to Show Cause
was sent by certified mail to Respondent at its address of record at
136 Belvedere Drive, Spartanburg, South Carolina 29301. A notice of
receipt was signed on behalf of Jay Enterprises and returned to DEA on
October 26, 2004. DEA has not received a request for a hearing or any
other reply from Jay Enterprises or anyone purporting to represent the
company in this matter.
Therefore, the Deputy Administrator of DEA, finding that (1) thirty
days have passed since delivery of the Order to Show Cause, and (2) no
request for a hearing having been received, concludes that Jay
Enterprises has waived its hearing right. See Aqui Enterprises, 67 FR
12,576 (2002). After considering relevant material from the
investigative file, the Deputy Administrator now enters her final order
without a hearing pursuant to 21 CFR 1309.53(c) and (d) and 1316.67.
The Deputy Administrator finds as follows.
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.
Phenylpropanolamine, also a list I chemical, is a legitimately
manufactured and distributed product used to provide relief of symptoms
from inflammation of the sinus, nasal and upper respiratory tract
tissues and for weight control. Phenylpropanolamine is also used as a
precursor in the illicit manufacture of methamphetamine and
amphetamine. In November 2000, the United States Food and Drug
Administration (FDA) issued a public health advisory requesting that
drug companies discontinue marketing products containing
phenylpropanolamine and that consumers not use them, due to risk of
hemorrhagic stroke. As a result, many pharmaceutical companies have
stopped using phenylpropanolamine as an active ingredient and, based on
FDA's findings, DEA has determined that a request to distribute
phenylpropanolamine constitutes a basis for denial of an application
for DEA registration. See, e.g., Gazaly Trading, 69 FR 22561 (2004);
Shani Distributors, 68 FR 62234 (2003).
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 11654 (2004); Branex, Inc., 69 FR 8682 (2004); Denver
Wholesale, 67 FR 99986 (2002); Yemen Wholesale Tobacco and Candy
Supply, Inc., 67 Fr 9997 (2002).
The Deputy Administrator's review of the investigative file reveals
that on or about January 15, 2004, an application was submitted by the
President and sole employee of Jay Enterprises, Mr. Desai S.
Devangkumar, seeking registration to distribute ephedrine,
pseudoephedrine and phenylpropanolamine listed chemical products. In
connection with the pending application, an on-site pre-registration
investigation was conducted by DEA Diversion Investigators at the
proposed registered location, which turned out to be Mr. Devangkumar's
residence. There were no security measures in place there and he stated
he would store the listed chemicals in a rental unit at a nearby
storage facility. Neither location afforded adequate physical security
for storage of listed chemicals, as required by 21 CFR 1309.71.
Mr. Devangkumar advised investigators his company distributed
sundries to retailers and that customers had requested that it carry
list I chemical products. Other than the two brands which were
specifically requested by customers, ``Max Brand'' and ``Mini-Thins,''
he was unable to identify any other products he intended to carry if
registered. Mr. Devangkamur also had no prior experience with list I
chemical and was unaware they were used as precursors in illicitly
manufacturing methamphetamine. While unable to provide a list of
specific customers, Mr. Devangkumar advised he planned to sell list I
chemical products to area convenience stores and truck stops.
DEA is aware that small illicit laboratories operate with listed
chemical products often procured, legally or illegally, from non-
traditional retailers of over-the-counter drug products, such as gas
stations and convenience stores. Some retailers acquire product from
multiple distributors to mask their acquisition of large amounts of
listed chemicals. In addition, some individuals utilize sham
corporations or fraudulent records to establish a commercial identity
in order to acquire listed chemicals.
Throughout the Southeastern United States, there has been a
consistent increase in the number of illicit laboratories and
enforcement teams continue to note a trend toward smaller capacity
laboratories. This is likely due to the ease of concealment associated
with small laboratories, which continue to dominate seizures and
cleanup responses.
DEA knows by experience that there exists a ``gray market'' in
which certain high strength, high quantity pseudoephedrine and
ephedrine products are distributed only to convenience stores and gas
stations, from where they have a high incidence of diversion. These
grey market products are rarely sold in large discount stores, retail
pharmacies or grocery stores, where sales of therapeutic over-the-
counter drugs predominate.
Max Brand has previously been identified by DEA as the ``precursor
product predominantly encountered and seized at clandestine
methamphetamine laboratories'' and that ``[c]onvenience stores are the
primary source for the purchase of the Max Brand products, which are
the preferred brand for use by illicit methamphetamine producers, and
users.'' Express Wholesale, 69 FR 62086, 62087 (2004); see also, RAM,
Inc. d/b/a American Wholesale Distribution Corp., 70 FR 11693, 11694
(2005). Similarly, Mini-Thins has been identified by DEA as a ``prime
product'' in this gray market industry. See, e.g., Prachi Enterprises,
Inc., 69 FR 69407, 69408 (2004).
As addressed in previous final orders, DEA knows from industry
data, market
[[Page 24621]]
studies and statistical analysis that over 90% of over-the-counter drug
remedies are sold in drug stores, supermarket chains and ``big box''
discount retailers. Less than one percent of cough and cold remedies
are sold in gas stations or convenience stores. Studies have indicated
that most convenience stores could not be expected to sell more than
$20.00 to $40.00 worth of products containing pseudoephedrine per
month. The expected sales of ephedrine products are known to be even
smaller. Furthermore, convenience stores handling gray market products
often order more product than what is required for the legitimate
market and obtain chemical products from multiple distributors. See,
e.g., RAM, Inc. d/b/a American Wholesale Distribution Corp., supra, 70
FR 11693; Volusia Wholesale, 69 FR 69409 (2004).
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. Section 823(h) requires that 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 of the applicant 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 a 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.,
Energy Outlet, 64 FR 14269 (1999). See also, Henry J. Schwartz, Jr.,
M.D., 54 FR 16422 (1989).
The Deputy Administrator finds factor one, four and five relevant
to the pending application for registration.
As to factor one, maintenance of effective controls against
diversion of listed chemicals into other than legitimate channels, the
DEA pre-registration inspection documented inadequate security at the
proposed registered location, a personal residence. See, e.g., John E.
McRae d/b/a J & H Wholesale, 69 FR 51480 (2004). Mr. Devangkumar then
proposed storing listed chemical products in a rental unit at a storage
facility; which investigators reported as also having little to no
security. Accordingly, this factor weights against granting
Respondent's application.
With regard to factor four, the applicant's past experience in the
distribution of chemicals, the Deputy Administrator finds this factor
relevant based on Mr. Devangkumar's lack of knowledge and experience
regarding the laws and regulations governing handling of list I
chemical products. In prior DEA decisions, this lack of experience in
handling list I chemical products has been a factor in denying pending
applications for registration. See, e.g., Direct Wholesale, supra, 69
FR 11654; ANM Wholesale, 69 FR 11652 (2004); Xtreme Enterprises, Inc.,
67 FR 76195 (2002).
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 the Southeast in particular. Ephedrine
and pseudoephedrine are precursor products needed to manufacture
methamphetamine and operators of illicit methamphetamine laboratories
regularly acquire the precursor products needed to manufacture the drug
from convenience stores and gas stations, which have been identified as
constituting the gray market for list I chemical products. It is
apparent that Jay Enterprises intends on being a participant in this
market.
While there are no specific prohibitions under the Controlled
Substances Act regarding the sale of listed chemical products to these
entities, DEA has nevertheless found these establishments serve as
sources for the diversion of large amounts of listed chemical products,
See, e.g., ANM Wholesale, 69 FR 11,652 (2004); Xtreme Enterprises,
Inc., supra, 67 FR 76195; K.V.M. Enterprises, 67 FR 70968 (2002);
Sinbad Distributing, 67 FR 10232 (2002).
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 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 76197. As
in Xtreme Enterprises, Inc., Mr. Devangkumar's lack of a criminal
record and any intent to comply with the law and regulations are far
outweighed by his lack of experience and the company's intent to sell
ephedrine and pseudoephedrine exclusively to the gray market. Because
Respondent's customers have also requested it provide them specific
products identified as the preferred precursors for illicit
manufacturing, the heightened risk of diversion should Respondent's
application be granted is both obvious and unacceptable.
The reasoning of Xtreme Enterprises has been consistently applied
by the Deputy Administrator in a series of final orders denying
applications for registration. See, TNT Distributors, Inc., 70 FR 12729
(2005); Titan Wholesale, Inc., supra, 70 FR 12,727; RAM, Inc. d/b/a
American Wholesale Distribution Corp., supra, 70 FR 11693; Al-Alousi,
Inc., 70 FR 3561 (2005); Volusia Wholesale, supra, 69 FR 69409; Prachi
Enterprises, Inc., supra, 69 FR 69407; CWK Enterprises, Inc., 69 FR
69400 (2004); J & S Distributors, 69 FR 62089 (2004); Express
Wholesale, supra, 69 FR 62086; Absolute Distributing, Inc., 69 FR 62078
(2004).
Finally, due to the apparent lack of safety associated with the use
of phenylpropanolamine, factor five is also relevant to Respondent's
proposal to distribute that product. DEA has previously determined such
a request constitutes a ground under factor five for denial of an
application for registration. See J & S Distributors, supra, 69 FR
62089; Gazaly Trading, supra, 69 FR 22561; William E. ``Bill'' Smith d/
b/a B & B Wholesale, 69 FR 22559 (2004); Shani Distributors, supra, 68
FR 62324.
Based on the foregoing, the Deputy Administrator concludes that
granting the 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 824 and 28 CFR 0.100(b) and 0.104, hereby orders the pending
application for DEA Certificate of Registration, previously submitted
by Jay Enterprises of Spartanburg, Inc., be, and it hereby is denied.
This order is effective June 9, 2005.
[[Page 24622]]
Dated: May 2, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-9252 Filed 5-9-05; 8:45 am]
BILLING CODE 4410-09-M