[Federal Register: September 1, 2006 (Volume 71, Number 170)]
[Notices]
[Page 52160-52165]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01se06-72]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 04-4]
Tri-County Bait Distributors; Denial of Application
Introduction and Procedural History
On August 11, 2003, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an
Order to Show Cause to Tri-County Bait Distributors (Respondent) of
Dorchester, South Carolina. The Show Cause Order proposed to deny
Respondent's application for a DEA Certificate of Registration as a
distributor of the List I chemicals ephedrine and pseudoephedrine on
the ground that its registration would be inconsistent with the public
interest as that term is defined in 21 U.S.C. 823(h).
The Show Cause Order specifically alleged that Respondent was
seeking to distribute products containing ephedrine and
pseudoephedrine, which are precursor chemicals that are used in the
production of methamphetamine, a schedule II controlled substance. Show
Cause Order at 1. The Show Cause Order alleged that Respondent was
proposing to sell these products exclusively to convenience stores and
combination bait shops/convenience stores, and that these
establishments are part of the non-traditional or gray market for these
products. Id. at 4. The Show Cause Order further alleged that
Respondent's owner, Mr. Terry L. Carroll, had stated that ``he had no
prior experience in the sale or marketing of OTC medications,'' and
that the distribution of List I chemicals would be ``approximately 20
percent of his business.'' Id. at 2. The Show Cause Order also alleged
that ``many smaller or non-traditional stores * * * purchase inordinate
amounts of these products and become conduits for the diversion of
listed chemical[s] into illicit drug manufacturing.'' Id. at 2-3.
Finally, the Show Cause Order alleged that Respondent's proposed
``product mix and sales of combination ephedrine products are
inconsistent with the known legitimate market and known end-user demand
for products of this type'' and that the registration of Respondent
``would likely lead to increased diversion of List I chemicals.'' Id.
at 4.
Respondent requested a hearing. The matter was assigned to
Administrative Law Judge (ALJ) Mary Ellen Bittner, who conducted a
hearing in Charleston, South Carolina, on October 5, 2004. Both the
Government and Respondent submitted post-hearing briefs.
On July 6, 2005, the ALJ issued her decision. The ALJ concluded
that the Government had proved by a preponderance of the evidence that
Respondent's registration would be inconsistent with the public
interest. See ALJ at 15-17. The ALJ thus recommended that Respondent's
application be denied. Id. at 17. Neither party filed exceptions.
[[Page 52161]]
Having considered the record as a whole, I hereby issue this
decision and final order. Except as expressly noted herein, I adopt the
ALJ's findings of fact and conclusions of law. For the reasons set
forth below, I concur with the ALJ's conclusion that granting
Respondent's application for registration would be inconsistent with
the public interest and therefore deny Respondent's application.
Findings of Fact
Respondent is a supplier of bait, fishing gear, and other items
including over-the-counter medicines that do not contain List I
chemicals to tackle shops, convenience stores, gas stations and marinas
that are located in several rural counties in South Carolina.
Respondent is located in Dorchester, South Carolina, and is owned by
Mr. Terry Carroll. Because Respondent's business is seasonal in nature
with a large variation in sales between summer and winter months, on
November 21, 2002, Mr. Carroll applied for a registration to distribute
the List I chemicals ephedrine and pseudoephedrine.
Methamphetamine and the Market for List I Chemicals
Both ephedrine and pseudoephedrine have therapeutic uses. They are,
however, regulated under the Controlled Substances Act because they are
precursor chemicals that are easily extracted from legal over-the-
counter products and used in the illicit manufacture of
methamphetamine. See 21 U.S.C. 802(34). Methamphetamine is a powerful
and addictive central nervous system stimulant, see A-1 Distribution
Wholesale, 70 FR 28573 (2005), and is a schedule II controlled
substance. 21 CFR 1308.12(d).
The illegal manufacture and abuse of methamphetamine pose a grave
threat to this country. Methamphetamine abuse had destroyed numerous
lives and families and ravaged communities. The manufacture of
methamphetamine also causes serious environmental harms because of the
toxic nature of the chemicals. Tr. at 96.
The State of South Carolina, which is where Respondent does
business, has experienced a substantial increase in the number of
illegal methamphetamine labs. According to the testimony of a DEA
special agent who serves as the agency's Clandestine Laboratory
Coordinator for South Carolina, in 2001 DEA found ten clandestine lab
sites in the State. Tr. 100. In 2002, DEA found 100 clandestine labs,
and in 2003, the agency found 130 sites. Id. The DEA Special Agent
further testified that in 2004, DEA expected that it would find between
165 to 185 labs. Id. These labs are predominately found in rural areas
of the State. Id. at 95.
The DEA Special Agent further testified that while the amount of
methamphetamine that can be produced from ephedrine and pseudoephedrine
varies with the skill of a methamphetamine cook, it is possible to
obtain a yield of 100 percent. The Special Agent also testified that
even with a 50 percent yield, 1000 grams of ephedrine or
pseudoephedrine would yield 500 grams of methamphetamine which has a
street value of $50,000. Id. at 100.
Another Government witness, Mark Rubbins, who was then Chief of the
Domestic Chemical Control Unit in the Chemical Control Section at DEA
Headquarters, testified by written declaration. Mr. Rubbins testified
that the traditional market for products containing ephedrine and
pseudoephedrine was comprised of chain grocery stores, national
pharmacy chains, and large retail outlets. These stores ``normally sell
pseudoephedrine in lower strengths such as 30 mg. tablets'' and in
smaller unit sizes such as blister packs not exceeding 48 dosage units
per package. Gov. Exh. 6. at 5. Moreover, manufacturers of products
sold in this market either sell direct to the chain stores or through
large nationally recognized distributors. Id. at 6.
Mr. Rubbins further testified that beginning in the mid-1990s,
following the enactment of the Domestic Chemical Diversion Control Act
of 1993 and the Comprehensive Methamphetamine Control Act of 1996,
traditional manufacturers stopped selling larger strength products such
as those containing a single active ingredient of 60 mg. of
pseudoephedrine in bottle sizes. Traditional market retailers also
stopped selling large count sizes of products containing List I
chemicals. See id. at 7-9.
Mr. Rubbins further testified that while traditional manufacturers
were reducing the size and strength of their List I products, smaller
manufacturers and distributors continued to market high strength
products in high dosage counts such as 60 mg. single entity
pseudoephedrine sold in bottles containing 60, 96 or 100 tablets. See
id. at 7 & 9. Mr. Rubbins testified that these products ``pass through
several layers of distribution'' and are now sold in such non-
traditional establishments as small convenience stores, gas stations,
liquor stores, and head shops. Id. at 6. According to Mr. Rubbins, non-
traditional retailers ``tend to knowingly sell in large quantities to
`smurfers,' '' who purchase the product on behalf of methamphetamine
manufacturers. Id. at 7. Mr. Rubbins also testified that based on data
obtained in lab seizures, he had concluded that DEA's enforcement
efforts involving pseudoephedrine products may have caused
methamphetamine traffickers to return to using combination ephedrine
products. See id. at 10.
The Government also submitted the declaration of Mr. Jonathan
Robbin, the President and founder of Ricercar, Inc. Mr. Robbin's firm
``specializes in the statistical analysis of demographic, economic,
geographic and survey data for the purpose of locating, sizing and
segmenting markets for a wide variety of consumer goods sold at
retail.'' Gov. Exh. 9, at 1. Mr. Robbin has credibly testified as an
expert witness on the market for ephedrine and pseudoephedrine products
in numerous proceedings including Federal criminal prosecutions, see,
e.g., United States v. Sdoulam, 398 F.3d 981, 989-91 (8th Cir. 2005),
and DEA proceedings. See, e.g. D & S Sales, 71 FR 37607 (2006).
In this proceeding, Mr. Robbin testified that based on his study of
U.S. Economic Census Data, data collected by the National Association
of Convenience Stores (NACS), and commercially available point of sale
transaction data, he had found that convenience stores sell only a very
small percentage of the market for non-prescription drugs. See Gov.
Exh. 9, at 5-7. According to Mr. Robbin's analysis, 97 percent of all
sales of non-prescription drugs occur in drug stores, supermarkets,
large discount merchandisers, and electronic shopping/mail-order
houses. Id. at 5. Mr. Robbin further testified that Economic Census
Data indicate that sales of non-prescription drugs in convenience
stores both selling and not selling gasoline account for only 2.2% of
total sales of all convenience stores that handle these products.\1\
Id. at 5-6.
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\1\ The ALJ found that Mr. Robbin ``stated that his analysis
showed that over-the-counter drugs containing pseudoephedrine
accounted for only 2.6 percent of all sales of health and beauty
products in convenience stores and only 0.05 percent of such stores'
total non-gasoline sales.'' ALJ at 9. The ALJ did not, however, cite
the specific portion of the Robbin declaration that she based her
finding on. My review of the Robbin declaration concludes that the
figures do not refer to the percentage of pseudoephedrine sales, but
rather the sale of all nonprescription drugs in convenience stores
based on data compiled by the National Association of Convenience
Stores. See Gov. Exh. 9, at 6.
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Mr. Robbin testified that the normal expected retail sales of
pseudoephedrine products in convenience stores ``may range between $0
and $40 per month, with an average
[[Page 52162]]
of $21.60.'' Id. at 9. With respect to ephedrine products, Mr. Robbin
further testified that the expected sales range of these products in a
convenience store is ``between $0 and $25 per month, with an average of
$12.58.'' Id. Mr. Robbin further testified that ``[a] sale of over $100
a month (5 times expectation) would be expected to occur in random
sampling about once in a million raised to the tenth power.'' \2\ Id.
Based on NACS surveys indicating that the average gross margin on these
products is about 40%, Mr. Robbin concluded that ``a convenience store
may be expected to spend an average of about $12 per month acquiring an
inventory of pseudoephedrine tablets at wholesale from a distributor or
$7.50 per month stocking ephedrine tablets.'' Id.
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\2\ While it is not entirely clear whether Mr. Robbin was
discussing a sale of pseudoephedrine or ephedrine, his reference
that the $100 amount was ``5 times expectation'' suggests that the
statement pertains to pseudoephedrine. I thus find that the
statement refers to pseudoephedrine sales.
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Finally, Mr. Robbin rendered an opinion based on information in the
DEA Diversion Investigator's (DI) report that Mr. Carroll had ``hope[d]
to sell $100.00 worth of List I chemicals to each [retail] customer
every month.'' Id. at 14. Mr. Robbin opined that this would ``translate
into retail sales of $167 per month, over eight times normal
expectation'' and that ``[s]uch an amount would be extraordinarily far
beyond what could normally be expected to be sold to ordinary consumers
by such stores.'' Id. at 15. He further concluded that ``all of these
listed retailers are not participating in the traditional market for
these products and could not sell $167 or more of them per month in
ordinary commerce for their intended purpose as non-prescription
drugs.'' Id. at 16.
The Pre-Registration Investigation
In February 2003, a DEA Diversion Investigator (DI) visited
Respondent at its proposed register location to conduct a pre-
registration investigation. The DI met with Mr. Carroll and interviewed
him regarding Respondent's proposed business in List I chemicals. Mr.
Carroll told the DI that he needed to distribute List I chemicals
because his customers were asking for them and because the products had
a high profit margin. See ALJ at 10. Mr. Carroll further told the DI
that he expected to sell approximately $100 per month of List I
chemicals per customer and that he expected List I chemicals to
comprise twenty percent of his revenue and possibly more if he was able
to increase his customer base. See id. With respect to the twenty
percent figure, Mr. Carroll testified, however, that he had not done a
market analysis and that the figure was just ``wishful thinking'' and
had no basis. Tr. 158. With respect to the $100 per month per customer
figure, ALJ found that Mr. Carroll testified that the amount included
all of the medicine he sold and not just that containing List I
chemicals. See ALJ Dec. at 12; see also Tr. at 182-83.
The DI further testified that during the interview, Mr. Carroll
informed him that he intended to sell both Mini Thins and Max Alert.
The DI testified that both products contain 25 mg. of ephedrine and 200
mg. of guaifenesin and that he had never seen these products in a
traditional retailer. Tr. 16. The DI further testified that these
products have been found at clandestine lab sites ``on many
occasions.'' Id. at 57. Mr. Carroll also told the DI that he wanted to
sell several nationally branded products such as Advil Cold & Sinus and
Tylenol Sinus. See ALJ at 12. Mr. Carroll testified, however, that ``he
had no objection to DEA placing restrictions on his ability to sell
certain products.''Id.
Mr. Carroll also testified that he had no connection to any illegal
methamphetamine cooks. Tr. at 167. He also testified that to his
knowledge, none of his customers were involved in the illegal
production or distribution of methamphetamine. Id. at 167-68.
During the investigation, Mr. Carroll gave the DI the name of his
expected supplier. Following the on-site inspection, the DI contacted
the supplier. The supplier told the DI that it had a minimum order
requirement of 36 60-count bottles. This prompted the DI's concern
because 60-count bottles are commonly found at clandestine lab sites.
Mr. Carroll also gave the DI a list of his potential List I chemical
customers. The DI contacted thirteen of them. Two of the customers
stated that they did not intend to sell List I chemical products.
Several of the other customers stated that while they would buy List I
products from Respondent, they also had other suppliers. This also
raised a concern because it indicated that a lot of product would be
coming into these stores and suggested the possibility of diversion. On
cross-examination, however, the DI testified that at least one of the
customers stated that he would buy from whoever offered the best price.
Tr. at 74. The record is unclear, however, as to whether the other
stores that already had a List I chemical supplier told the DI that
they would limit their purchases to the supplier that offered the best
price.
The DI also testified that Respondent proposed to store the List I
chemicals in a room of an old mobile home. According to the DI, the
room had ``a wooden door of not very heavy construction,'' with a
single cylinder doorknob lock and no deadbolt. Id. at 21. Moreover, the
room had ``regular glass-plate windows'' and did not have an alarm
system. Id. at 22. Mr. Carroll testified, however, that he had replaced
the mobile home's exterior door and that this door had a lock on it.
Id. at 162. Mr. Carroll's testimony does not indicate what type of lock
it is. See id. Mr. Carroll further testified that he was building a
barn with an office and a refrigerated room in which he would store
medicine. Id. at 161.
The ALJ further found that the DI ``conceded that Respondent's
facility minimally met DEA guidelines.'' ALJ Decision at 11. While the
DI testified that the security ``was minimum, very minimum,'' he added
that ``it was very questionable.'' Tr. at 20. I therefore do not accept
the DI's testimony as conclusive proof that Respondent's facility met
our guidelines.
The DI further testified that Mr. Carroll indicated that he had no
experience in the sale of List I chemicals. Id. at 19. Mr. Carroll's
wife testified, however, that she sold these products in her bait shop
at the retail level and that Mr. Carroll had run the store when she was
tending to her daughter. Id. at 129-130. Mrs. Carroll further testified
that she had observed Mr. Carroll handling these products while working
in her bait shop, and that she had never observed anything improper in
the way he had handled them. Id. at 130. She further testified that her
husband was an honest, hardworking man, and ``would never do anything
that would compromise the welfare of our family.'' Id.
Discussion
Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals
is entitled to be registered unless I determine that the registration
would be ``inconsistent with the public interest.'' In making this
determination, Congress directed that I consider the following factors:
(1) Maintenance by the applicant of effective controls against
diversion of listed chemicals into other than legitimate channels;
(2) Compliance by the applicant with applicable Federal, State,
and local law;
(3) Any prior conviction record of the applicant 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.
[[Page 52163]]
Id. ``These factors are considered in the disjunctive.'' Joy's
Ideas, 70 FR 33195, 33197 (2005). I may rely on any one or a
combination of factors, and may give each factor the weight I deem
appropriate in determining whether an application for registration
should be denied. See, e.g., David M. Starr, 71 FR 39367 (2006); Energy
Outlet, 64 FR 14269 (1999). In this case, I conclude that factors one,
four and five require the denial of Respondent's application.
Factor One--Maintenance of Effective Controls Against Diversion
The ALJ acknowledged that Respondent's proposed location for
storing List I products is inadequate. As the record demonstrates, the
proposed location was a room in an old mobile home that contained two
plate-glass windows, and had an entry door of insubstantial
construction that was secured by only a single cylinder lock. See 21
CFR 1309.71(b)(3) (requiring consideration of ``[t]he type of building
construction comprising the facility and the general characteristics of
the building''). Moreover, while Respondent testified that he had
replaced the exterior door to the building, his testimony did not
indicate what type of lock was installed in the door. Furthermore, the
mobile home does not have an alarm system. See id. at 1309.71(b)(4).
The proposed location clearly does not provide adequate security to
protect List I chemicals from diversion through theft. See, e.g., David
M. Starr, 71 FR 39367, 39368 (2006).
The ALJ nonetheless concluded that because Mr. Carroll testified
that he was building a new facility, the record does not establish
whether or not Respondent would provide adequate security. See ALJ at
15. I disagree--the Government did prove that Respondent's proposed
registered location would not provide adequate security. The
speculative possibility that Respondent would eventually construct a
facility that meets DEA's standards does not refute the Government's
evidence.
Beyond that, the evaluation of an application requires significant
agency resources including the employee travel time and inspection time
necessary to conduct an on-site, pre-registration investigation.
Moreover, applicants for any DEA registration should familiarize
themselves with the regulations and other policies such as those
contained in the Chemical Handlers Manual before applying.
In this case, approximately six months elapsed from the date of the
pre-registration investigation until the issuance of the Show Cause
Order. Yet at no time during this period did Respondent notify DEA that
he was planning on building a new facility. It was only after service
of the Show Cause Order--and apparently at the hearing--that Respondent
stated his intention to build a new facility.
Because there must be some finality in this process, I decline to
allow applicants to challenge a show cause order's allegation that
their proposed location lacks proper security by asserting at a hearing
that they plan improvements. Once a show cause order is issued, an
applicant can challenge an allegation that the security of the proposed
location is inadequate only by showing that the facility met DEA
guidelines at the time of the on-site inspection, or that it had
corrected any security deficiencies so as to be in compliance and had
submitted adequate proof of its compliance to DEA prior to issuance of
the order.\3\
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\3\ In the event that a proposed location's lack of security was
the only reason that the application was denied, an applicant can
always reapply after the necessary improvements have been completed.
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I thus conclude that Respondent does not have effective controls
against diversion. This factor alone supports a finding that
Respondent's registration would be inconsistent with the public
interest.
Factors Two--Compliance With Applicable Laws
The ALJ concluded that there was ``no evidence or indication that
Respondent has not complied with applicable Federal, State, and local
laws.'' ALJ at 16. I agree and conclude that this factor weighs in
favor of a finding that Respondent's registration would not be
inconsistent with the public interest.
Factor Three--The Applicant's Prior Record of Relevant Criminal
Convictions
The ALJ further found that there was no evidence that Mr. Carroll
has a prior criminal conviction for a drug-related offense. Mr.
Carroll, however, admitted on the application that he had previously
been convicted of a crime relating to controlled substances or
chemicals. See Gov. Exh. 1, at 1. On the application, Mr. Carroll
explained that he ``had a possession charge in 1980,'' but that he had
not ``had a problem since.'' Id. at 2. The Government offered no
evidence to the contrary. In light of the age of the conviction, I
conclude that it is not probative in assessing whether Respondent's
registration would be inconsistent with the public interest. I thus
conclude that this factor does not bar registration.
Factor Four--Past Experience of the Applicant in the Distribution of
Chemicals
The ALJ found that Mr. Carroll had no prior experience distributing
List I chemicals. I agree.
I further acknowledge the testimony that Mr. Carroll had sold List
I products while working in his wife's store. I do not consider this to
be relevant experience. The regulatory requirements applicable to List
I chemical distributors are numerous and complex. See 21 CFR Pts. 1309
& 1310. Moreover, retail distributors of ephedrine and pseudoephedrine
were generally exempt from the recordkeeping and reporting
requirements.\4\ Furthermore, Mr. Carroll does not claim that his
experience working as a retail clerk required him to perform any of the
recordkeeping and reporting requirements applicable to a non-retail
distributor.
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\4\ This discussion reflects the regulatory landscape pre-dating
the Combat Methamphetamine Epidemic Act of 2005. Under provisions of
the Combat Meth. Act that become effective on September 30, 2006,
retail distributors are required to maintain a logbook which records
the name and address of each purchaser of pseudoephedrine or
ephedrine products, the date and time of the sale, the product name
and the quantity.
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DEA has recognized that an applicant's lack of experience in
distributing List I chemicals creates a greater risk of diversion and
thus weighs heavily against the granting of an application. See Starr,
71 FR at 39368; Jay Enterprises, 70 FR 24620, 24621 (2005); ANM
Wholesale, 69 FR 11652, 11653 (2004). Respondent's lack of relevant
experience thus weighs against granting the application.
Factor Five--Other Factors That Are Relevant To and Consistent With
Public Health and Safety
Respondent argues that the sale of List I chemical products is
legal activity and that these products are sold ``not only in drug
stores and supermarkets, but in the very same mom and pop stores to
which [it] intends to sell them.'' Resp. Proposed Findings at 3.
Respondent further argues that the Government has not shown any link
between itself and illicit manufacturers of methamphetamine. See id.
I acknowledge Respondent's contention that the sale of List I
chemical products is a legal activity and that Congress has not
prohibited non-traditional retailers from selling these products.
Numerous DEA cases recognize, however, that the sale by non-traditional
retailers of List I chemical products containing ephedrine and
pseudoephedrine is an area of particular concern in preventing
[[Page 52164]]
diversion of these products into the illicit manufacture of
methamphetamine. See Joey Enterprises, 70 FR 76866, 76867 (2005). As
Joey Enterprises explains, ``[w]hile there are no specific prohibitions
under the Controlled Substances Act regarding the sale of listed
chemical products to [gas stations and convenience stores], DEA has
nevertheless found that [these entities] constitute sources for the
diversion of listed chemical products.'' Id. See also TNT Distributors,
70 FR 12729, 12730 (2005) (special agent testified that ``80 to 90
percent of ephedrine and pseudoephedrine being used [in Tennessee] to
manufacture methamphetamine was being obtained from convenience
stores''); OTC Distribution Co., 68 FR 70538, 70541 (2003) (noting
``over 20 different seizures of [gray market distributor's]
pseudoephedrine product at clandestine sites,'' and that in an eight
month period distributor's product ``was seized at clandestine
laboratories in eight states, with over 2 million dosage units seized
in Oklahoma alone.''); MDI Pharmaceuticals, 68 FR 4233, 4236 (2003)
(finding that ``pseudoephedrine products distributed by [gray market
distributor] have been uncovered at numerous clandestine
methamphetamine settings throughout the United States and/or discovered
in the possession of individuals apparently involved in the illicit
manufacture of methamphetamine'').
Moreover, clandestine lab seizures have frequently found high-
strength, high count List I chemical products, thus indicating that
these are the preferred products for illicit methamphetamine
manufacturers. See OTC Distribution, 68 FR at 70541, Shani
Distributors, 68 FR 62324, 62325 (2003); MDI Pharmaceuticals, 68 FR at
4236. Respondent proposed to sell similar high strength, high count
products. See Xtreme Enterprises, 67 FR 76197, 76195 (2002); Tr. at 57
(special agent testified that Mini Thins and Max Alert bottles have
been found at clandestine lab sites ``on many occasions'').
Moreover, all of Respondent's proposed customers participate in the
non-traditional market for ephedrine and pseudoephedrine products.\5\
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\5\ I acknowledge Respondent's contention that List I chemical
products are sold in ``the very same mom and pop stores to which
[it] intends to sell them.'' Resp. Proposed Findings at 3. However,
the purpose of this proceeding is to determine whether granting
Respondent's application to be a distributor would be consistent
with the public interest. In short, that other firms have
established their qualifications to distribute List I chemical
products to non-traditional retailers is not relevant in assessing
Respondent's application.
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DEA final orders recognize that there is a substantial risk of
diversion of List I chemicals into the illicit manufacture of
methamphetamine when these products are sold by non-traditional
retailers. See, e.g., Joy's Ideas, 70 FR at 33199 (finding that the
risk of diversion was ``real, substantial and compelling''); Jay
Enterprises, 70 FR at 24621 (noting ``heightened risk of diversion''
should application be granted); Xtreme Enterprises, 67 FR at 76197.
Under DEA precedents, an applicant's proposal to sell into the non-
traditional market weighs heavily against the granting of a
registration under factor five. So too here.\6\
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\6\ I do not rely on the Government's expert testimony that
Respondent's expected sales could not occur in ordinary commerce.
The expert testimony was not based on actual sales figures. See,
e.g., D & S Sales, 71 FR at 37611. Rather, it was an estimate, and
there is no evidence establishing that Mr. Carroll discussed with
his customers how much product they would purchase from Respondent.
Moreover, the ALJ did not resolve the factual dispute as to whether
the estimate included only sales of List I chemicals, or of all the
OTC medicines Respondent intended to sell. Because our precedents do
not require an evaluation of an applicant's estimated sales level to
justify denial of an application, I need not resolve this factual
question. In accordance with D & S Sales, the use of expert
testimony showing that a registrant's actual sales greatly exceeded
legitimate demand remains a valid means of proving diversion.
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I also reject Respondent's contention that it entitled to a
registration because ``[t]he government has established no link between
[it] and the small illicit laboratories that manufacture
methamphetamine.'' Resp. Proposed Findings at 3. Under the public
interest standard of section 823(h), the Government is not required to
prove that an applicant (or one of the stores the applicant intends to
sell to) is linked to illicit meth. manufacturers in order to sustain a
denial of an application or revoke a registration. Rather, the statute
directs that I consider a variety of factors; an applicant's lack of a
direct link to illegal drug distribution is just one of several factors
to be considered in determining the public interest. See 21 U.S.C.
823(h).
Because of the methamphetamine epidemic's devastating effects, DEA
has repeatedly denied an application when an applicant proposed to sell
into the non-traditional market and analysis of one of the other
statutory factors supports the conclusion that granting the application
would create an unacceptable risk of diversion. Thus, in Xtreme
Enterprises, my predecessor denied an application observing that
respondent's ``lack of criminal record, compliance with the law and
willingness to upgrade her security system are far outweighed by her
lack of experience with selling List I chemicals and the fact that she
intends to sell ephedrine almost exclusively in the gray market.'' 67
FR at 76197. More recently, I denied an application observing that the
respondent'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.'' Jay Enterprises, 70 FR at 24621.
Accord Starr, 71 FR at 39368-69; Prachi Enterprises, 69 FR 69407, 69409
(2004).
I further note that each of these cases was decided before the
recent enactment of the Combat Methamphetamine Epidemic Act of 2005.
See USA Patriot Improvement and Reauthorization Act of 2005, Pub. L.
109-177, Tit. VII, 120 Stat.192, 256-275 (2006). I acknowledge that in
the course of considering the Act, Congress rejected proposals to
schedule pseudoephedrine products as a controlled substance, and thus
prohibit their sale by non-traditional retailers. See, e.g. H.R. 314,
109th Cong. Sec. 104 (2005). Congress did not, however, overturn DEA
precedents interpreting the public interest standard of 21 U.S.C.
823(h) as authorizing the denial of an application to distribute List I
chemicals on grounds similar to those established by the record in this
case. Cf. Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 846
(1986) (When Congress revisits a statute, its ``failure to revise or
repeal the agency's interpretation is persuasive evidence that the
interpretation is the one intended by Congress.'') (internal quotations
and other citation omitted).
Here, the factors that support denial of the application outweigh
those that support granting it. Respondent's proposed security measures
are plainly inadequate and are thus grounds alone to deny the
application. Moreover, Respondent's owner lacks relevant experience in
the distribution of List I chemicals and proposes to sell to non-
traditional retailers, a market in which the risk of diversion is
substantial. I thus conclude that granting Respondent's application
would be ``inconsistent with the public interest.'' 21 U.S.C. 823(h).
Order
Accordingly, pursuant to the authority vested in me by 21 U.S.C.
823(h), and 28 CFR 0.100(b) and 0.104, I hereby order that the
previously submitted application of Tri-County Bait Distributors for a
DEA Certificate of Registration as a distributor of List I
[[Page 52165]]
chemicals be, and it hereby is, denied. This order is effective October
2, 2006.
Dated: August 22, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-14524 Filed 8-31-06; 8:45 am]
BILLING CODE 4410-09-P