[Federal Register Volume 67, Number 238 (Wednesday, December 11, 2002)]
[Notices]
[Pages 76195-76198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31210]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Xtreme Enterprises, Inc.: Denial of Request for Registration To 
Handle List I Chemicals

I. Background

    On December 15, 2000, Xtreme Enterprises, Inc., (Respondent) 
applied to be registered with the Drug Enforcement Administration (DEA) 
as a distributor of the list I chemical ephedrine. After an 
investigation by DEA investigators, on April 6, 2001, the Deputy 
Assistant Administrator, Office of Diversion Control, issued an Order 
to Show Cause why DEA should not deny Respondent's application. On May 
2, 2001, in response to the OSC, Rhonda J. Bryngelson, the owner of 
Respondent, requested and administrative hearing.
    The requested hearing was held in Milwaukee, Wisconsin on November 
7, 2001, before Administrative Law Judge Mary Ellen Bittner. At the 
hearing, each party called witnesses to testify and introduced 
documentary evidence. After the hearing, each party submitted Proposed 
Findings of Fact, Conclusions of Law and Argument. On April 3, 2002, 
the Administrative Law Judge issued her Recommended Rulings, Findings 
of Fact, Conclusions of Law and Decision, recommending that the Deputy 
Administrator grant Respondent's application for registration. Neither 
party filed exceptions to the Administrative Law Judge's Findings.
    On May 7, 2002, the Administrative Law Judge certified and 
transmitted the record to the Deputy Administrator of DEA. The record 
included the Recommended Rulings, Findings of Fact, Conclusions of Law 
and Decision of the Administrative Law Judge, the findings of fact and 
conclusions of law proposed by all parties, all of the exhibits and 
affidavits, and the transcript of the hearing sessions.

II. Final Order

    The Deputy Administrator does not adopt the Findings of Fact, 
Conclusions of Law, and Decision of the Administrative Law Judge. The 
Deputy Administrator has carefully reviewed the entire record in this 
matter, as defined above, and hereby issues this final rule and final 
order prescribed by 21 CFR 1316.67 and 21 CFR 1304.46, based upon the 
following findings of fact and conclusions.
    At the hearing, John N. Uncapher, then chief of the Domestic 
Chemical Control Unit at DEA, credibly testified that the primary 
objective of his unit is to reduce or curtail the diversion of listed 
chemicals and other clandestine lab supplies, register applicants if 
their registration is consistent with the public interest and stop 
imports of listed chemicals where there is reason to believe that the 
imports may be diverted to the unlawful manufacture of controlled 
substances. After the enactment of the Chemical Diversion and 
Trafficking Act in 1988 (CDTA), the law imposed reporting, record 
keeping and import/export notification requirements for regulated 
transactions in controlled chemicals. The law only applied to bulk 
ephedrine, however. The law excepted single-entity over the counter 
(OTC) ephedrine products.
    Mr. Uncapher also testified that ephedrine has a therapeutic use in 
both OTC and legend drug products. Ephedrine is lawfully marketed under 
the Federal Food, Drug and Cosmetic act for OTC use as a bronchodilator 
used in the treatment of asthma. Ephedrine is also available OTC in 
combination with other active ingredients. As a legend drug (i.e. 
dispensed pursuant to a physician's order or prescription,) ephedrine 
is used in injectable form in hospitals as part of an anethesiology 
kit. Ephedrine has the beneficial effect of increasing low pressure 
very rapidly in the event of hypotensive crisis.
    By the late 1980's traffickers and clandestine lab operators 
discovered the ease with which ephedrine could be purchased in large 
quantities and converted to methamphetamine. In 1994, however, the 
Domestic Chemical Diversion Control Act of 1993 (DCDCA) removed the 
record keeping and reporting exemption for single entity ephedrine and 
required registration of distributors, importers and exporters of all 
ephedrine products and other list I chemicals.
    The passage of the DCDCA led to the increased diversion of 
pseudoephedrine tablets for the illicit production of methamphetamine. 
This led to the enactment of the Comprehensive Methamphetamine Control 
Act of 1006 (MCA), which expanded regulatory control of lawfully 
marketed drug products containing ephedrine, pseudoephedrine, and 
phenypropanolamine.
    Mr. Uncapher also testified that he had reviewed the file 
concerning Respondent's application. The file revealed that 
Respondent's owner informed DEA that the Respondent would distribute 
ephedrine products to entities that are considered part of the ``non-
traditional market'' (i.e., gas stations and convenience stores). Mr. 
Uncapher also testified that one of Respondent's proposed suppliers of 
ephedrine is Proactive Labs, Inc., a DEA registered distributor of list 
I chemicals located in Austell, Georgia. On November 9, 1999 and again 
on January 24, 2001, Proactive Labs was the recipient of warning 
letters from DEA informing the company that list I chemicals supplied 
by the firm had been associated with the illicit production of 
methamphetamine in various parts of the United States. Mr. Uncapher 
concluded that Respondent's ephedrine products will likely be diverted 
to illicit use, and the Respondent would therefore become a major 
source of listed chemicals for illicit traffickers of methamphetamine.
    Guy J. Hargreaves testified by written declaration that he is a 
Special Agent at DEA and has had considerable experience in the 
investigation of clandestine methamphetamine laboratories. He routinely 
conducts nationwide methamphetamine and clandestine laboratory safety 
presentations to civil groups, anti-drug coalitions, and law 
enforcement groups on safety awareness, chemical hazards, and the 
latest intelligence in clandestine laboratory investigations. Mr. 
Hargreaves testified that until the early 1990's, the methamphetamine 
trade was fragmented into small organizations dominated by outlaw 
motorcycle gangs. Afterwards, organized methamphetamine traffickers 
from Mexico began to monopolize the production and delivery of 
methamphetamine to make an inexpensive and highly abusable product. An 
expanded population of methamphetamine abusers quickly realized the 
potential for easily producing methamphetamine for personal or local 
use by using the ephedrine/pseudoephedrine reduction technique. As a 
result, the proliferation of smaller laboratories has reached epidemic 
proportions, on both the west coast and in several Midwestern states. 
S/A Hargreaves further testified that most drugs in illicit traffic are 
products of illicit processing or synthesis. In the methamphetamine 
trade, chemicals are often accumulated and processed by cooks in small 
scale production labs or by organized crime groups which operate much 
larger scale clandestine laboratories.
    Mr. Hargreaves also testified that clandestine laboratory operators 
employ a variety of methods to conceal from law enforcement their 
purchases of

[[Page 76196]]

chemicals and equipment. One common technique is to use unwitting 
individuals or runners to purchase the chemicals or equipment needed 
for the laboratory. Mr. Hargreaves also explained the four methods most 
commonly used in the illicit manufacture of methamphetamine. All four 
of the techniques utilize 1-ephedrine or d-pseudoephedrine as the 
precursor chemical. Mr Hargreaves further testified that the number of 
clandestine laboratory seizures has seen a spiraling increase in recent 
years. DEA participation in methamphetamine lab seizures has increased 
from 263 in 1994 to more than 2000 in 1999. He also discussed the 
hazards to DEA officials in dismantling of clandestine laboratories and 
great expense to DEA in disposing of the hazardous materials often 
found there. Interviews that Mr. Hargreaves has conducted with numerous 
narcotics officers across the nation indicate that the vast majority of 
these laboratories utilized pseudoephedrine and/or ephedrine from 
tablets and pills, not bulk powder sources.
    Douglas A. Snyder, Drug Science officer within the Drug and 
Chemical Evaluation Section at DEA, credibly testified by declaration 
that there are 35 chemicals that are regulated under the Controlled 
Substance Act's chemical control provisions. The major part of DEA's 
regulatory concern is with the listed chemicals ephedrine, 
psuedoephedrine and phenylpropanolamine. All three have therapeutic 
uses in both over the counter and legend drug products. Methamphetamine 
also has therapeutic uses, but it also has a high abuse potential. Dr. 
Snyder further testified that the production of methamphetamine from 
ephedrine or pseudoephedrine tablets can be accomplished via a simple 
one step reaction and can be accomplished with little or no chemistry 
expertise. The controlled substances produced from these chemicals, 
methamphetamine and amphetamine, have a high abuse potential. The 
public health consequences of the manufacture, trafficking and abuse of 
these substances are well know and documented.
    Nancy Coffey, a staff coordinator in DEA's Office of Diversion 
Control, credibly testified by declaration that recent studies show 
that illicit manufacturers of methamphetamine have returned to the use 
of ephedrine in the manufacturing process. This probably has occurred 
as a result of DEA's concentration on the diversion of pseudoephedrine. 
DEA enforcement efforts are designed to combat the distribution by non-
traditional establishments of list I chemical products, commonly 
referred to as ``gray market'' products. The distribution chain for the 
gray market products most commonly consists of small retail 
establishments, including, but not limited to, liquor stores, head 
shops, mini-marts, beauty parlors, convenience stores and video rental 
stores that purchase and sell ephedrine and pseudoephedrine over-the-
counter products in quantities that far exceed what would be necessary 
to meet legitimate demand. Ms. Coffey concluded that such products will 
likely be diverted to illicit use, and Respondent could therefore 
become a major source of listed chemicals for illicit traffickers of 
methamphetamine.
    Mark J. Rubbins testified by declaration that he is a Staff 
Coordinator in the Domestic Control Unit of DEA. He explained that DEA 
distinguishes the distribution practices of what is referred to as the 
``traditional'' market versus the ``non-traditional'' market. 
Traditional outlets are typically large chain grocery stores such as 
Giant, Safeway and Food Lion, or nationally recognized pharmacy chains 
like Rite Aid, Eckerts and CVS. The traditional products are also sold 
in larger convenience stores such as 7-11 and Dairy Mart, as well as 
large retail outlets such as Walmart and K-Mart. Mr. Rubbins further 
testified that in response to DEA enforcement efforts, more and more 
traditional firms have discontinued their marketing of 60 mg. 
pseudoephedrine and similar OTC medications in bottle sizes with a 
single-active ingredient. The traditional manufacturers have also begun 
packaging their OTC products in small quantities (i.e., blister packs,) 
and have maintained a 30 milligram strength for pseudoephedrine 
products. While even smaller blister packs are increasingly diverted to 
illicit uses, they are not as attractive to traffickers as OTC products 
packaged in large bottle sizes, with a single active ingredient. Mr. 
Rubbins also testified that Respondent would be part of what DEA 
considers the non-traditional market, in that it is a retail 
distributor that specializes in the sale of sundry items, not OTC 
pharmaceutical products. Based upon his review of Respondent's file, it 
appears that some of Respondent's customers have already requested that 
the firm carry 25 milligram tablets in 60 count bottles. Mr. Rubbins 
found this factor significant in that the customers at issue requested 
the larger packaging that is not normally seen in traditional retail 
establishments. This led Mr. Rubbins to the conclusion that Respondent 
plans to market its products to the non-traditional market, and would 
therefore become a major source of listed chemicals for illicit 
traffickers of methamphetamine.
    Rhonda Bryngelson, Respondent's owner, testified credibly on behalf 
of the Respondent. She is high school educated, and has not taken any 
business courses. She has no prior experience handling list I 
chemicals. Mrs. Bryngelson testified further that she is the sole owner 
of the Respondent and has been in business since January 2001. Her 
business is primarily engaged in the sale of various novelty items. She 
previously worked for her brother-in-law's company Quality Snacks, 
where she delivered beef jerky for the company. Quality Snacks did not 
sell ephedrine products. While working for her brother-in-law, Mrs. 
Bryngelson also made deliveries for Quality Snack's wholesaler, Mid-
America. Although she made deliveries of ephedrine products on behalf 
of Mid-America, she did not know whether Mid-America or her brother-in-
law were licensed to sell these products. Mrs. Bryngelson testified 
that when she made the above deliveries of listed chemicals, they were 
usually in 50-count boxes, in packets of six. She also delivered, 
however, ``a blue or green'' 60-count bottle, but she was unaware of 
the product names.
    The government also called James Barbe as a witness. At the time of 
his testimony, Mr. Barbe was a Diversion Investigator with DEA's 
Milwaukee office. Mr. Barbe credibly testified that Mrs. Bryngelson 
submitted on behalf of her company an application for DEA registration 
as a distributor of the list I chemical ephedrine.\1\ The Respondent's 
listed address on the application was in Merton, Wisconsin. The 
application was received by the Milwaukee Resident Office. D/I Barbe 
further testified that he was assigned to investigate the Respondent's 
application. The Respondent's proposed registered address is located in 
a residential location owned by Mrs. Bryngelson's sister, Theresa, and 
her husband Bruce Johnson. Mrs. Bryngelson stores her novelty products 
in a basement at that location. The residence is located in a rural 
community, and Mrs. Bryngelson does not reside at that location.
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    \1\ At the hearing, Mrs. Bryngelson stated that she believed 
that she had applied for registration to sell both ephedrine and 
pseudoephedrine.
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    In an interview conducted of Mrs. Bryngelson by D/I Barbe, Mrs. 
Bryngelson stated that:
    [sbull] She had no experience with over the counter medications or 
listed chemicals.

[[Page 76197]]

    [sbull] Some of her customers had requested that the Respondent 
supply listed chemical products in addition to her normal product line, 
because they wanted her to be their sole source.
    [sbull] When asked which listed chemical products she wished to 
distribute, she replied that she wanted to sell those in ``the green 
and blue bottle'' and ``Green E'' from Proactive Labs.
    [sbull] She estimated that Respondent's percentage of sales of 
listed chemicals would be five percent of its total sales.
    [sbull] In response to questions regarding the security for 
Respondent's proposed location, she said that she would use a locked 
door.
    [sbull] She informed D/I Barbe that the proposed location is in a 
secluded 360 acres in the middle of a cornfield, and that the location 
never had break-ins or the like.
    After a visit to Respondents location, D/I Barbe testified that he 
did not recall seeing a bolt lock on the door leading to the basement 
area. Mrs. Bryngelson testified that no alarm system or any electronic 
security system had been set up at the proposed registered location. 
She also testified that she was willing to have as much security 
installed as DEA required.
    D/I Barbe also testified that he reviewed ``suspicious order'' 
procedures with Mrs. Bryngelson. He also discussed matters involving 
background checks on customers. D/I Barbe testified that Mrs. 
Bryngelson was unaware at that time of how to address suspicious 
orders. Mrs. Bryngelson also testified that some of her accounts had 
threatened to discontinue their business with Respondent unless she was 
able to supply listed chemical products. However, she was only able to 
identify three of the twenty-customers disclosed to DEA that had 
actually threatened such action. She also testified that she had 
recently added 80 additional customers, and that only ``a couple'' had 
been interested in obtaining ephedrine.
    D/I Barbe also testified that he had asked Mrs. Bryngelson how many 
bottles she planned on selling, and she replied that it would be 
approximately twelve bottles per week Mrs. Bryngelson testified at the 
hearing, however, that this estimate was ``a wild guess.''
    D/I Barbe further testified that he had obtained a list of 
Respondent's customers, and he verified the identity of these customers 
through telephone calls and visits. He found that most of Respondent's 
accounts were gas stations. D/I Barbe further testified that 
Respondent's customers were part of what DEA considers the non-
traditional market, in that they were retail distributors that 
specialized in the sale of sundry items, not OTC pharmaceutical 
products. The customers were comprised primarily of gas stations and 
convenience stores. D/I Barbe also testified that some of Respondent's 
customers had already requested that Respondent carry 25 milligram 
tablets in 60 count bottles of ephedrine. D/I Barbe explained that 
these requests were significant in that the customers at issue had 
already begun requesting list I chemicals from the Respondent, a 
specific type of product, in packaging that is not normally seen in 
traditional retail establishments.
    The Government also presented the transcribed testimony of Jonathan 
Robbin, of Ricercar, Incorporated, in Bethesda, Maryland. Mr. Robbin is 
a consultant in marketing information systems, databases and in the 
building of analytical models to assist businesses in decision making. 
Mr. Robbin provided the transcribed testimony on behalf of the 
Government in a previous DEA proceeding involving Branex, Incorporated. 
He was offered as an expert in statistical analysis, specifically in 
multi-varient statistics and the processing of population and economic 
census data. Mr. Robbin was also offered as an expert in quantitative 
marketing research specifically with respect to retail marketing and 
targeting. Mr. Robbin testified that according to the economic census, 
the normal or traditional place where consumers would purchase non-
prescription drugs would be in drug stores, supermarkets and discount 
merchandise houses. Mr. Robbin testified that the expected sale of 
these products at convenience stores and convenience stores attached to 
gas stations were not significant enough to warrant inclusion in the 
most recent census data form for cold, sinus and allergy products. Mr. 
Robbin continued that such products represented ``a very small part of 
[the] total line of goods'' for convenience stores, whether or not they 
sell gasoline.
    Based upon the above, the Deputy Administrator will now consider 
the factors used by DEA to determine the public interest. Under 21 
U.S.C. 823(h), the Attorney General shall register an applicant to 
distribute a list I chemical unless the Attorney General determines 
that the registration of the applicant is inconsistent the public 
interest.\2\ In considering the public interest, the Deputy 
Administrator shall consider:
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    \2\ This function has been redelegated to the Deputy 
Administrator of DEA.
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    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 laws;
    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.
    Consideration of the first factor weighs against Respondent. 
Although Mrs. Bryngelson agreed to provide increased security at the 
residence where list I chemicals will be stored, she appears to have 
only a rudimentary knowledge of what would constitute a suspicious 
order.
    With regard to the second factor, there was no evidence that the 
Respondent has failed to comply with Federal, State or local law. As 
for the third factor, there is no evidence that Mr. Bryngelson has any 
prior convictions related to controlled substances or chemicals. 
Accordingly, the second and third factors weigh in Respondent's favor. 
Addressing the fourth factor, Mrs. Bryngelson has no experience in the 
manufacture or distribution of chemicals, which weighs against 
Respondent.
    With regard to the fifth factor, many considerations weigh heavily 
against registering Respondent as a distributor of list I chemicals. 
Virtually all of Respondent's's customers, consisting of gas stations 
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. Some of these customers 
have already requested 60 count bottles of ephedrine, the favored 
packaging of illicit methamphetamine manufacturers. Mrs. Bryngelson 
also appears to have little idea of the extent of her market for listed 
chemicals. She testified that she expected to sell approximately 12 
bottles of ephedrine each week, but she admitted that this was a ``wild 
guess.''
    The Deputy Administrator finds that Mrs. Bryngelson's lack of a 
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. Accordingly, the 
Deputy Administrator of the Drug Enforcement Administration, pursuant 
to the

[[Page 76198]]

authority vested in him by 21 U.S.C. 823 and 824 and 28 CFR 0.100 and 
0.104, hereby finds that registration of Respondent as a distributor of 
list I chemicals is not in the public interest. The Deputy 
Administrator hereby orders that the application for a DEA certificate 
of registration and any requests for renewal or modification submitted 
by Respondent Xtreme Enterprises be, and hereby are, denied.

    Dated: December 2, 2002.
John B. Brown, III,
Deputy Administrator.
[FR Doc. 02-31210 Filed 12-10-02; 8:45 am]
BILLING CODE 4410-09-M