[Federal Register Volume 70, Number 95 (Wednesday, May 18, 2005)]
[Notices]
[Pages 28573-28574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-9833]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


A-1 Distribution Wholesale; Denial of Registration

    On October 8, 2004, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to A-1 Distribution Wholesale (A-1) proposing to 
deny its September 19, 2002, application for DEA Certificate of 
Registration as a distributor of list I chemicals. The Order to Show 
Cause alleged that granting A-1'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 A-1 that should no request for a hearing be filed 
within 30 days, its hearing right would be deemed waived.
    According to the DEA investigative file, the Order to Show Cause 
was sent by certified mail to A-1 at its proposed registered location 
at 6751 Macon Road, Suite 18, Columbus, Georgia 31909. It was then 
forwarded by the U.S. Postal Service to A-1's new address at 7565 
Chattsworth Road, Midland, Georgia 31820-4026, where it was received on 
October 18, 2004. DEA has not received a request for a hearing or any 
other reply from A-1 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 A-1 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 commonly used to illegally manufacture 
methamphetamine, a Schedule II controlled substance. 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 
11,654 (2004); Branex, Inc., 69 FR 8,682 (2004); Yemen Wholesale 
Tobacco and Candy Supply, Inc., 67 FR 9,997 (2002); Denver Wholesale, 
67 FR 99,986 (2002).
    The Deputy Administrator's review of the investigative file reveals 
that on or about September 19, 2002, an application was submitted by 
the owner of A-1, Mr. David Smith, seeking registration to distribute 
ephedrine and pseudoephedrine list I chemical products. The application 
originally included phenylpropanolamine, but that listed chemical 
product was eventually deleted from the request.
    In connection with the pending application, an on-site pre-
registration investigation was conducted at the proposed premises in 
April 2003. Investigators were advised that A-1 was a sole 
proprietorship, operated by Mr. Smith and his wife, with no other 
employees. It commenced operations in June 2002 and was a wholesale 
distributor of general merchandise such as health and beauty aids, 
automotive products, sunglasses and other sundry items. A-1 provided a 
list of products it intended to carry which included 60 tablet bottles 
of Mini Two Way and Two Way brand combination ephedrine, as well as 
Pseudo 60 brand pseudoephedrine. The majority of A-1's proposed 
customers were gas stations, small retail markets and convenience 
stores in the Columbus, Georgia area. Neither Mr. Smith nor his wife 
had any prior experience with the distribution of list I chemicals.
    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 small retail markets. 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.
    The Deputy Administrator has previously found that the illegal 
production of methamphetamine continues unabated within the DEA Atlanta 
region. The adjacent State of Tennessee leads the region in the number 
of clandestine laboratories seized, accounting for approximately 50 
percent of the clandestine laboratories seized during the second 
quarter of 2002. When compared with the third quarter of 2001, the 
increase in clandestine laboratory seizures is notable. According to 
later records for the Atlanta region, 360 clandestine laboratories were 
seized during the third quarter of 2002. Of the 360 laboratories seized 
during that reporting period, 207 were located in Tennessee, 103 in 
Georgia, 35 in South Carolina and 15 in North Carolina. See CWK 
Enterprises, Inc. (CWK), 69 FR 69,400 (2004); Prachi Enterprises, Inc. 
(Prachi), 69 FR 69,407 (2004).
    In the State of Georgia, 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 smaller laboratories, which 
continue to dominate seizures and cleanup responses. The adjacent State 
of Tennessee also has a substantial methamphetamine abuse problem in 
the Chattanooga and Eastern Tennessee areas and DEA is aware of a past 
history of trafficking in precursors in these locations. Distributors 
or retailers selling the illicit methamphetamine trade observe no 
borders and trade across state lines. In fact, where precursor laws are 
stringent, out-of-state distributors often make direct shipments to 
retainers without observing state requirements. See CKW, supra, 69 FR 
69,400; Prachi, supra, 69 FR 69,407.
    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,

[[Page 28574]]

from where they have a high incidence of diversion. These grey market 
products are not sold in large discount stores, retail pharmacies or 
grocery stores, where sales of therapeutic over-the-counter drugs 
predominate. ``Two-way'' ephedrine and single entity pseudoephedrine 
products are prime products in this gray market industry and are rarely 
found in any retail store serving the traditional therapeutic market.
    DEA also knows from industry data, market 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. Most 
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.
    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 of 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 14,269 (1999). See also, Henry J. Schwartz, Jr., 
M.D., 54 FR 16,422 (1989).
    The Deputy Administrator finds factors four and five relevant to 
the pending application for registration.
    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. and Mrs. Smith'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., CWK, supra, 69 FR 69,400; 
Prachi, supra, 69 FR 69,407; Direct Wholesale, supra, 69 FR 11,654; ANM 
Wholesale, 69 FR 11,652 (2004); Xtreme Enterprises, Inc., 67 FR 76,195 
(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 Southeast. 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, in prior DEA decisions, 
have been identified as constituting the grey market for list I 
chemical products. It is apparent that A-1 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, supra, 69 FR 11,652; Xtreme Enterprises, 
Inc., 67 FR 76,195; Sinbad Distributing, 67 FR 10,232 (2002); K.V.M. 
Enterprises, 67 FR 70,968 (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 grey 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 76,197. As 
in Xtreme Enterprises, Inc., lack of a criminal record and intent to 
comply with the law and regulations are far outweighed by A-1's lack of 
experience and the company's intent to sell ephedrine and 
pseudoephedrine primarily to the gray market. See also, CWK, supra, 69 
FR 69,400; Prachi, supra, 69 FR 69,407.
    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 A-1 Distribution Wholesale, be, and it hereby is, denied. This order 
is effective June 17, 2005.

    Dated: May 9, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-9833 Filed 5-17-05; 8:45 am]
BILLING CODE 4410-09-M