[Federal Register Volume 62, Number 194 (Tuesday, October 7, 1997)]
[Rules and Regulations]
[Pages 52253-52256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26177]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Parts 1309, 1310 and 1313

[DEA Number 154F]
RIN 1117-AA42


Implementation of the Comprehensive Methamphetamine Control Act 
of 1996; Possession of List I Chemicals Definitions, Record Retention, 
and Temporary Exemption From Chemical Registration for Distributors of 
Combination Ephedrine Products

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Final rule.

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SUMMARY: DEA is finalizing the Interim Rule, which included a request 
for comment, published in the Federal Register on February 10, 1997, 
(62 FR 5914). The Interim Rule amended the regulations to incorporate 
certain amendments to the Controlled Substances Act (CSA) made by the 
Comprehensive Methamphetamine Control Act of 1996 (MCA) and to provide 
temporary exemption from registration for persons who distribute 
combination ephedrine products. Comments were received regarding 
industry interpretation of certain requirements of both the CSA and the 
MCA. This notice responds to those comments and clarifies the 
requirements of the CSA and MCA with respect to the distribution of 
combination ephedrine products.

EFFECTIVE DATE: October 7, 1997.

FOR FURTHER INFORMATION CONTACT: G. Thomas Gitchel, Chief, Liaison and 
Policy Section, Office of Diversion Control, Drug Enforcement 
Administration, Washington, D.C. 20537, Telephone (202) 307-7297.

SUPPLEMENTARY INFORMATION: On February 10, 1997, DEA published an 
interim rule, with request for comment, in the Federal Register (62 FR 
5914) to implement certain regulatory changes mandated by the MCA and 
to provide temporary exemption from registration pending promulgation 
of final regulations to implement the MCA.
    Five comments were received regarding the interim rule. Three 
separate issues were raised in the comments:
    (1) Two comments expressed support for the temporary exemptions and 
urged that the exemption from registration for retail distributors as 
described in the MCA be made permanent. DEA agrees and will make the 
exemption permanent.
    (2) Three comments asserted that DEA's interpretation of the MCA is 
incorrect and that the registration requirement does not apply to 
wholesale distributors that engage in only sub-threshold transactions 
of combination ephedrine products.
    Specifically, the commentors assert that while Section 302(a)(1) of 
the CSA (21 U.S.C. 822(a)(1)) requires that any person who distributes 
a List I chemical must register, that requirement is tempered by 
Section 303(h) of the CSA (21 U.S.C. 823(h)), which provides, in part, 
that registration shall not be required for the distribution of a drug 
product that is exempted under section 102(39)(A)(iv). Section 102(39) 
of the CSA (21 U.S.C. 802(39)) defines the term ``regulated 
transaction''. The definition provides in paragraph (A)(iv) that a 
transaction in a listed chemical contained in a drug product that may 
be marketed or distributed under the Food, Drug, and Cosmetic Act (FDC 
Act) is not a regulated transaction, unless the drug contains 
ephedrine, pseudoephedrine, or phenylpropanolamine, and the quantity of 
ephedrine, pseudoephedrine, or phenylpropanolamine equals or exceeds 
the threshold established for the chemical. These provisions are echoed 
in DEA's regulations; Title 21, Code of Federal Regulations (CFR), 
Section 1309.21(a) requires registration for the distribution of a List 
I chemical, other than a List I chemical contained in a drug product 
that is exempted under 21 CFR section 1310.01(f)(1)(iv). The commentors 
assert the definition of regulated transaction provides that a

[[Page 52254]]

drug product remains exempt if the amount of List I chemical involved 
in the transaction is less than the threshold established for that 
chemical. Under the circumstances, the commentors argue that persons 
who engage only in sub-threshold distributions of List I chemicals 
contained in drug products are exempt from the registration 
requirement.
    The commentors analysis of the referenced portions of the law fails 
to acknowledge certain points of law that must be considered in 
determining who must register.
    First, the MCA amends existing language to remove the exemption for 
combination ephedrine products. The specific language that is subject 
to the commentors analysis (21 U.S.C. 802(39)(A)(iv) (I) and (II) and 
21 U.S.C. 823(h)) was added to the CSA by the Domestic Chemical 
Diversion Control Act of 1993 (DCDCA).
    A review of the legislative history of the DCDCA reveals that, as 
described in a letter of support for the DCDCA from the then Acting 
Administrator of DEA to the Chairman of the House Committee on Energy 
and Commerce, the registration system established under that act was 
``* * * precisely patterned after the system which we have successfully 
employed for handlers of controlled substances since 1971.'' (U.S. 
Congressional and Administrative News, 103rd Congress, Vol. 4, Page 
2986) The registration system for handlers of controlled substances, 
while providing for the exemption of certain products that contain 
controlled substances, does not consider the quantity involved in a 
distribution when determining whether registration is required; either 
the product is exempt or non-exempt. Thus, 21 U.S.C. 823(h) provides 
that the exemption from registration applies to exempted products, and 
not, as the commentor apparently reads it, to selective exempted 
distributions. In addition, the House Report No. 103-379, relating to 
the bill (H.R. 3216) which subsequently was enacted as the DCDCA, 
states ``This provision removes the exemption from record-keeping and 
reporting requirements of the Controlled Substances Act (CSA) for drugs 
containing ephedrine as the only active medicinal ingredient * * * It 
also removes the exemption for ephedrine products containing 
therapeutically insignificant quantities of other active ingredients.'' 
[emphasis added] At the time the DCDCA was enacted, the established 
threshold for ephedrine in any form was one kilogram. As Congress did 
not mention thresholds in its discussion of the exemption from 
registration created by the 1993 amendments, it follows that in 
enacting 21 U.S.C. 823(h), it meant the exemption from registration to 
apply to drug products themselves, rather than to transactions in drug 
products. Exempt products are not subject to the CSA's system of 
thresholds; therefore, thresholds had no relevance to the discussion.
    Therefore, a distributor who distributes any amount of a List I 
chemical, including a drug product that is not exempt, is subject to 
the registration requirement.
    Two additional points were raised in this matter by the commentors. 
The first dealt with the claimed inconsistency in DEA's determination 
to exempt retail distributors from the registration requirement and not 
exempt wholesale distributors if they engage solely in sub-threshold 
sales. These commentors stated that since retail distributors, by 
definition, limit sales to sub-threshold levels, wholesale distributors 
who limit sales to the substantially higher thresholds for wholesalers 
should also be exempt from registration.
    There is no inconsistency in DEA's decision. The United States 
Congress, with the substantial participation of the affected 
industries, developed the MCA with the intent of providing controls to 
prevent the diversion of products to the illicit manufacture of 
methamphetamine, while not unnecessarily interfering with legitimate 
public access to the products at the retail level.
    The MCA does not make any pretense of amending the existing 
chemical registration and recordkeeping requirements under the CSA, as 
amended by the CDTA and DCDCA. The principal effect of the MCA is the 
removal of the exemption for pseudoephedrine, phenylpropanolamine, and 
combination ephedrine drug products, making these products subject to 
the controls under the CSA that apply to all List I chemicals. Thus, as 
with any other List I chemical, any person who distributes, imports, or 
exports any amount of these products will be subject to the chemical 
registration requirement and, to the extent that the transaction(s) 
meet the threshold criteria, the chemical recordkeeping and reporting 
requirements.
    Within this framework, the MCA specifically establishes in the CSA 
the unique category of `retail distributor' which is distinct from all 
other distributors of List I chemicals. A retail distributor is defined 
as a ``* * * person whose activities as a distributor relating to 
pseudoephedrine or phenylpropanolamine products are limited almost 
exclusively to sales for personal use, both in number of sales and 
volume of sales, either directly to walk-in customers or in face-to-
face transactions by direct sales.'' The MCA further provides that the 
``* * * sale of ordinary over-the-counter pseudoephedrine or 
phenylpropanolamine products by retail distributors shall not be a 
regulated transaction * * *'' [emphasis added]. These provisions 
clearly establish Congress' intent that public access to the products 
at the retail level be protected and that the protection applies only 
to one specific type of activity carried out by one specific type of 
distributor. It is equally clear, given the absence of any 
corresponding provisions in the MCA for other distributors, that the 
existing chemical controls, including registration, apply to the 
activities of all other distributors.
    DEA recognized that the threat of diversion from the retail level 
would be minimized by adherence to the 24 gram per transaction 
threshold and that this reduced threat does not now justify the 
potential impact that the chemical controls might have on legitimate 
public access to the products at the retail level. Thus, DEA determined 
that an exemption from the registration requirement for retail 
distributors of combination ephedrine products who engage exclusively 
in sub-threshold transactions was consistent with the intent of the MCA 
that legitimate public access to drug products at the retail level be 
protected.
    The absence of any exceptions in the MCA for non-retail 
distributors, coupled with the much larger thresholds (1 kilogram for 
combination ephedrine products and pseudoephedrine and 2.5 kilograms 
for phenylpropanolamine); the need to balance the lack of controls over 
transactions at the retail level with controls at the wholesale level; 
and the fact that it has been DEA's experience that the most efficient 
and effective means to identify and control diversion from the retail 
and wholesale levels is through application of the controls at the 
wholesale level, all pointed to the need to maintain the registration 
requirement envisioned by the MCA at the wholesale level.
    The second concern dealt with the lack of a comprehensive listing 
identifying all of the products that contain ephedrine, and the 
difficulties that distributors could encounter in terms of identifying 
regulated products and complying with the chemical control 
requirements. DEA recognizes that in the absence of a `closed system' 
of distribution as exists for controlled

[[Page 52255]]

substances, the identification of products that may be subject to 
regulation is more difficult. DEA will, where possible, work with the 
industry to assist in identification of such products. Further, the MCA 
makes all products containing ephedrine subject to regulation. 
Manufacturers of such products will have to obtain their distributor 
customers DEA registration numbers prior to distributing the products, 
which should assist in identifying products that are subject to 
regulation.
    (3) Two comments asserted that the MCA exemption for sales of 
ordinary over-the-counter pseudoephedrine and phenylpropanolamine 
products by retail distributors and EAS's general exemption for retail 
distributors (21 CFR 1309.29) should also apply to distributions to the 
retail distributors by warehouses that are owned or operated by the 
owner of a retail chain. The commentors argue that the definition of 
retail distributors should encompass the entire retail distribution 
system, which includes both the retail outlets and the warehouses or 
storage facilities which are owned or operated by the same corporate 
entity that owns the retail outlets. They state that the distributions 
from the warehouses or storage facilities are not sales but transfers 
or intracompany sales within the retail distributor operation that are 
related to the retail sales of the products. One commentor last noted 
that within their industry warehouses and storage facilities are 
classified within the same Standard Industrial Classification (SIC) 
code that the MCA references in the definition for the retail outlets.
    The MCA provides that the ``* * * sale of ordinary over-the-counter 
pseudoephedrine or phenylpropanolamine products by retail distributors 
shall not be a regulated transaction * * *''. MCA, Section 401(b)(1); 
21 U.S.C. 802(39) (A)(iv)(I)(aa). The MCA defines `retail distributor' 
as ``* * * a grocery store, general merchandise store, drug store, or 
other entity or person whose activities as a distributor relating to 
pseudoephedrine or phenylpropanolamine products are limited almost 
exclusively to sales for personal use, both in number of sales and 
volume of sales, either directly to walk-in customers or in face-to-
face transactions by direct sales.'' (emphasis added] MCA Section 
401(b)(4); 21 U.S.C. 802(46). `Sales for personal use' is defined as 
``* * * the sale of below-threshold quantities in a single transaction 
to an individual for legitimate medical use.'' MCA 401(b)(4); 21 U.S.C. 
802(46)(B).
    The definitions printed above describe the activities that a retail 
distributor may engage in with sufficient detail to establish the type 
of transactions that are to be exempted from regulation. The MCA 
provides that the exemption shall apply to sales by persons whose 
activities are limited almost exclusively to sales to individuals for 
legitimate medical use, both in number of sales and volume of sales, 
either directly to walk-in customers or in face-to-face transactions by 
direct sales. This language clearly does not contemplate an exception 
for a major class of wholesale distributions.
    Further, the assertion that retail distributor should be defined as 
the corporate entity that is engaged in the process of retail 
distribution fails to acknowledge the requirements of the CSA with 
respect to separate registration for separate locations. The chemical 
registration requirements parallel the registration requirements 
established for controlled substances handlers; under such 
requirements, each location at which List I chemicals are distributed, 
imported, or exported must be viewed individually, as a separate 
person, for purposes of application of the chemical controls under the 
CSA.
    Under the circumstances, the MCA cannot be read as providing an 
exemption for warehouses or storage facilities that operate within a 
retail distribution system. The MCA recognizes, quite logically, that 
if one portion of the distribution chain is to be granted exemption 
from regulation, then the other portion of the chain must be subject to 
control to insure that the distribution chain does not become a source 
of supply for the methamphetamine traffickers.
    DEA does wish to note that in addition to receiving comments 
regarding registration for distributors of sub-threshold amounts of 
product and registration for distributors within retail distribution 
chains, the agency was also approached directly by the commentors for 
clarification of the requirements in each case. At the same time that 
this notice was drafted, individual responses were also provided 
directly to the commentors in response to their requests for 
clarification. While it may appear unusual for DEA to respond directly 
to persons regarding issues that have been raised in formal comments 
submitted in response to a rulemaking notice, it should be noted that 
neither concern has a direct bearing on the substance of the interim 
rule. The question of registration of distributors of sub-threshold 
amounts of product involves interpretation of the registration 
requirements established under the DCDCA in 1993; the MCA is only 
peripherally involved through its removal of the exemption from 
regulation for pseudoephedrine, phenylpropanolamine, and combination 
ephedrine products, subjecting them to the existing registration 
requirements. The question of registration for distributors within the 
retail distribution system involves clarification of a specific 
provision of the law which does not require any additional regulatory 
provisions to implement beyond technical amendments to make the 
language of the regulations consistent with the language of the law. 
Further, it was necessary that the requestors be given clarification of 
these points as quickly as possible to insure that the affected 
distributors could be advised as to the need to submit applications for 
registration prior to the deadline.
    Following the close of the comment period of April 11, 1997, DEA 
received a written request, dated April 17, 1997, for an extension of 
the filing deadline for the temporary exemption in 21 CFR 1310.09. The 
requestor, a representative of a segment of industry heretofore not 
subject to DEA's chemical controls, cited industry misunderstandings 
regarding the registration requirements of the CSA and DEA's 
administration of the chemical control program in justifying the need 
for an extension of the deadline. DEA recognized that there had been 
confusion in the industry regarding the application of certain 
requirements under the MCA; therefore, the application deadline for 
temporary exemption was extended to July 12, 1997.
    Accordingly, DEA's interim rule, published on February 10, 1997 (62 
FR 5914), and amended on May 21, 1997 (62 FR 27693), is being adopted 
as a final rule.
    The Deputy Assistant Administrator for the Office of Diversion 
Control hereby certifies that this rulemaking will not have a 
significant economic impact upon a substantial number of entities whose 
interests must be considered under the Regulatory Flexibility Act, 5 
U.S.C. 601 et seq. This rulemaking is an administrative action to make 
the regulations consistent with the law and to avoid interruption of 
legitimate commerce by granting temporary exemptions from registration 
pending promulgation, through notice and comment, of the regulations 
necessary to implement the provisions of the MCA pertaining to 
combination ephedrine products. Further, since this is a temporary 
action which provides affected persons with a means to

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comply with the law pending promulgation of regulations implementing 
the MCA, this action is not a significant regulatory action and 
therefore has not been reviewed by the Office of Management and Budget 
pursuant to Executive Order 12866. Consideration of the significant and 
impact of the new requirements of the MCA will be addressed as part of 
a future notice by DEA proposing regulations to implement the MCA.
    This action has been analyzed in accordance with the principles and 
criteria in Executive Order 12612, and it has been determined that this 
rule does not have sufficient federalism implications to warrant the 
preparation of Federalism Assessment.
    This rule will not resulting the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 or more in any one year, and will not significantly or 
uniquely affect small governments.
    Therefore, no actions were deemed necessary under the provisions of 
the Unfunded Mandates Reform Act of 1995.
    This rule is not a major rule as defined by Section 804 of the 
Small Business Regulatory Enforcement Fairness Act of 1996. This rule 
will not result in an annual effect on the economy of $100,000,000 or 
more; a major increase in costs or prices; or significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based companies to 
compete with foreign-based companies in domestic and export markets.
    Accordingly, the interim rule amending 21 CFR parts 1309, 1310, and 
1313, which was published at 62 FR 5914 on February 10, 1997, and 
amended at 62 FR 27693 on May 21, 1997, is adopted as a final rule.

    Dated: September 29, 1997.
John H. King,
Deputy Assistant Administrator, Office of Diversion Control.
[FR Doc. 97-26177 Filed 10-6-97; 8:45 am]
BILLING CODE 4410-09-M