[Federal Register Volume 70, Number 89 (Tuesday, May 10, 2005)]
[Notices]
[Pages 24620-24622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-9252]


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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