[Federal Register Volume 72, Number 47 (Monday, March 12, 2007)]
[Notices]
[Pages 11055-11058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-1103]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 05-22]


Planet Trading, Inc., d/b/a/ United Wholesale Distributors, Inc.; 
Denial of Application

    On February 15, 2005, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to Planet Trading, Inc., (Respondent) of Orlando, Florida. 
The Show Cause Order proposed to deny Respondent's pending application 
for a DEA Certificate of Registration as a distributor of the list I 
chemicals ephedrine and pseudoephedrine on the ground that Respondent's 
registration would be inconsistent with the public interest. Show Cause 
Order at 1,  see also 21 U.S.C. 823(h).
    More specifically, the Show Cause Order alleged that both ephedrine 
and pseudoephedrine are ``commonly used to illegally manufacture 
methamphetamine, a Schedule II controlled substance.'' Show Cause Order 
at 1. The Show Cause Order alleged that ``DEA knows by experience'' 
that a ``gray market'' exists ``in which certain pseudoephedrine and 
ephedrine products are distributed only to convenience stores and gas 
stations, from where they have a high incidence of diversion'' into the 
illicit manufacture of methamphetamine. Id. at 2. Relatedly, the Show 
Cause Order alleged that only ``[a] very small percentage'' of 
legitimate sales of list I chemical products occur in gray market 
retailers and that the average gray market retailer ``could expect to 
sell * * * only about $10.00 to $30.00 worth of pseudoephedrine 
products'' a month. Id. at 3. The Show Cause Order also alleged that 
the expected sales for combination ephedrine products are ``only one-
fourth of'' this amount. Id.
    The Show Cause Order alleged that during a pre-registration 
investigation, Respondent's president advised DEA investigators that 
his firm distributes sundry items and tobacco products to convenience 
stores, gas stations, and small independent groceries, which constitute 
the gray market for list I chemical products. Id. at 2. The Show Cause 
Order further alleged that during an interview, Respondent stated that 
he had ``little or no background in handling list I chemical 
products.'' Id. The Show Cause Order also alleged that Respondent told 
the investigators that he intended to sell list I products that were 
marketed in bottles and not blister packs because the latter ``were not 
good sellers.'' Id.
    The Show Cause Order also alleged that Respondent intended to store 
the list I products in a warehouse ``with all other items [and] without 
any additional security installed.'' Id. at 3. The Show Cause Order 
further alleged that ``[b]ecause [Respondent's] customers are allowed 
to serve themselves from the warehouse shelves, all customers will have 
unescorted access to the list I chemicals stored in the warehouse.'' 
Id.
    Finally, the Show Cause Order alleged that Respondent's ``proposed 
sales of combination ephedrine and pseudoephedrine products are 
inconsistent with the known legitimate market and known end-user demand 
for products of this type,'' and thus Respondent ``would be serving an 
illegitimate market for [these] product[s].'' Id. The Show Cause Order 
concluded by alleging that because Respondent's owner had ``no 
experience handling list I chemicals'' and its warehouse has 
``insufficient security,'' its ``registration would likely lead to 
increased diversion of list I chemicals.'' Id.
    Respondent, through its owner Mr. Vihang Patel, requested a 
hearing. The case was assigned to Administrative Law Judge (ALJ) Mary 
Ellen Bittner, who conducted a hearing in Tampa, Florida, on November 
1, 2005. At the hearing, both parties put on witnesses and introduced 
documentary evidence. Following the hearing, the Government submitted 
proposed findings of fact and conclusions of law.
    On April 25, 2006, the Administrative Law Judge submitted her 
decision which recommended that Respondent's application be denied. 
Neither party filed exceptions. The record was then forwarded to me for 
final agency action.
    Having considered the record as a whole, I hereby issue this 
decision and final order. I adopt the ALJ's decision in

[[Page 11056]]

its entirety and conclude that Respondent's registration would be 
inconsistent with the public interest. I therefore order that 
Respondent's application be denied.

Findings

    Respondent, a Florida corporation, sells sundry items and tobacco 
products to convenience stores, gas stations, and small independent 
groceries. Respondent does not make deliveries. Rather, it operates a 
walk-in warehouse which is located in an Orlando, Florida industrial 
park. Respondent's President is Mr. Vihang Patel; Mr. Patel and his two 
brothers each own one-third of the corporation. See ALJ Dec. at 9-10.
    On August 27, 2003, Mr. Patel applied on Respondent's behalf for a 
DEA Certificate of Registration to distribute list I chemicals. Gov. 
Ex. 1. As relevant here, Respondent sought the registration to 
distribute pseudoephedrine and ephedrine.\1\ Id.
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    \1\ Respondent also sought to distribute phenylpropanolamine 
(PPA), a product which is the subject of an FDA rulemaking which 
proposes to reclassify the drug as not generally safe and effective. 
See 70 FR 75988, 75994 (2005). Respondent no longer seeks 
registration to distribute PPA products.
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Methamphetamine and the Market for List I Chemicals

    As explained in numerous DEA final orders, both pseudoephedrine and 
ephedrine currently have therapeutic uses. See, e.g., Tri-County Bait 
Distributors, 71 FR 52160, 52161 (2006).\2\ Both chemicals are, 
however, regulated under the Controlled Substances Act because they are 
precursor chemicals which are easily extracted from non-prescription 
products and used in the illicit manufacture of methamphetamine, a 
Schedule II controlled substance. See 21 U.S.C. 802(34); 21 CFR 
1308.12(d).
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    \2\ The FDA is, however, currently proposing to remove 
combination ephedrine-guaifenesin products from its over-the-counter 
(OTC) drug monograph and to declare them not safe and effective for 
OTC use. See 70 FR 40232 (2005).
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    Methamphetamine is a powerful and highly addictive central nervous 
system stimulant. See, e.g., Tri-County Bait Distributors, 71 FR at 
52161. The illegal manufacture and abuse of methamphetamine pose a 
grave threat to this country. Methamphetamine abuse has destroyed 
numerous lives and families and ravaged communities. Moreover, because 
of the toxic nature of the chemicals which are used to make the drug, 
the illegal manufacture of methamphetamine causes serious environmental 
harms. Id., see also Tr. 12.
    The illicit manufacture of methamphetamine is an increasing problem 
in the State of Florida. According to the testimony of a DEA Special 
Agent, during the period October 1, 2004, through September 30, 2005, 
law enforcement authorities seized 340 clandestine laboratories 
statewide. Tr. 10-11. A DEA Diversion Investigator (DI) further 
testified that the illicit manufacture of methamphetamine is an 
especially serious problem in central Florida and the panhandle. Id. at 
26.
    The record further establishes that there is both a traditional 
market and a non-traditional (or gray) market for pseudoephedrine and 
ephedrine products. According to the declaration of Jonathan Robbin, 
who has testified as an expert on statistical analysis of these markets 
in numerous proceedings, pseudoephedrine products sold in the 
traditional market typically contained 30 mg. of the chemical, are 
manufactured ``in combination with other active ingredients,'' and are 
sold in blister packs of 24, 36, or 96 count. Gov. Ex. 10, at 3-4. 
Ephedrine products sold in the traditional market typically contain 
12.5 mg. of ephedrine and 200 mg. of guaifenesin and are sold in boxes 
of either 24 or 60 tablets. Id. at 4. By contrast, the products sold in 
the non-traditional market typically contain 60 mg. of pseudoephedrine, 
which is not combined with any other active ingredient, and are sold in 
bottles containing 60, 100, and 120 tablets. Id. at 5; see also Gov. 
Ex. 6, at 12. Moreover, the ephedrine products sold in the non-
traditional market typically contain 25 mg. of ephedrine combined with 
200 mg. of guaifenesin and are sold in bottles containing 60 tablets. 
Gov. Ex. 10, at 6.
    According to the Government's expert witness, who has examined both 
the 1997 and 2002 United States Economic Censuses, approximately 97 
percent of all non-prescription drugs are sold in pharmacies, 
supermarkets, large discount and general merchandise stores, or through 
electronic shopping/mail order houses. Id. at 4. The data also show 
that non-prescription drug sales accounted for only 2.6% (in the 2002 
Economic Census) ``of the overall sales of all convenience stores that 
handle'' these products and only 0.6% of the total sales of convenience 
stores. Id. at 4-5. The Government's expert further testified that the 
sale of pseudoephedrine products comprise ``only about 2.6% of the 
[Health and Beauty Care] category of merchandise or 0.05% of total in-
store (non-gasoline) sales that occur at convenience stores. Id. The 
Government's expert further stated that combination ephedrine products 
``have about half the over-the-counter sales volume'' of 
pseudoephedrine products. Id. According to the Government's expert, the 
normal expected sales range to meet legitimate demand for 
pseudoephedrine products at a non-traditional retailer is ``between $0 
and $40 per month, with an average of $20.60''; the expected sales 
range for combination ephedrine products at a convenience store is 
``between $0 and $25, with an average of $12.58'' per month. Id. at 8.
    Finally, the Government's expert recounted numerous instances in 
which wholesale distributors sold massive quantities of pseudoephedrine 
and ephedrine products to convenience stores and other non-traditional 
retailers. See id. at 8-14. The expert further concluded that the 
massive sales of these products cannot be explained by persons buying 
them for non-FDA approved uses such as ``weight loss or energy 
enhancement.'' Id. at 16. As the Government's expert concluded, DEA has 
found that these massive sales are ``indicative of diversion to illicit 
use.'' Id. at 17.
    According to DI Mark J. Rubbins, who served as Chief of the 
Domestic Chemical Control Unit of the Office of Diversion Control, 
``[n]on-traditional stores * * * tend to knowingly sell [list I 
products] in large quantities to `smurfers.' '' Gov. Ex. 6, at 6. DI 
Rubbins further explained that smurfers ``are groups of individuals 
affiliated with methamphetamine traffickers that frequent these 
establishments at different times or on different dates, with the aim 
of buying out a store's supply of over-the-counter medications.'' Id. 
at 6-7.
    DI Rubbins further testified that certain list I products have been 
``disproportionately represented in clandestine lab seizures around the 
United States.'' Id. at 12. The pseudoephedrine products are Mini Thin, 
Mini Twin, Unique, Action-Pseudo, Revive, OTC-Pseudo, and Twin-Pseudo; 
the ephedrine products are Max Brand, Xtreme, Xtreme Relief Dual, Mini 
Two-Way, and Max Brand Id. at 11-12. In addition, the brand names 
MinTwin 2-Way and Heads-Up are used to sell both pseudoephedrine and 
ephedrine tablets. Id. at 12. With respect to the pseudoephedrine 
products, DI Rubbins stated that these products are preferred by 
illicit methamphetamine producers because pseudoephedrine is their only 
active ingredient and they are packaged in ``large bottle sizes.'' Id. 
Moreover, blister packs are not preferred by methamphetamine producers 
because it is more ``time consuming'' to extract the product from its 
packaging. Tr. 35.

[[Page 11057]]

The Pre-Registration Investigation and Respondent's Testimony

    On January 27, 2004, a DI visited Respondent's facility and met 
with Mr. Vihang Patel, Respondent's president, to conduct a pre-
registration investigation. Tr. 29. During the inspection, Mr. Patel 
provided the DI with a list of the list I chemicals products his firm 
intended to sell. Gov. Ex. 5.The list included numerous products that 
are preferred by illicit methamphetamine producers including bottle 
sizes of Ephedrine Two-Way, MiniThin Two-Way, and Max Brand Two-Way.\3\ 
Id. at 2. Additionally, the list included a number of products that do 
not contain list I chemicals such as Goody Powder, Goody Body Pain 
Powder, BC Arthritis Powder, and BC Powder. Id. at 1. Moreover, at the 
hearing Mr. Patel demonstrated a general lack of knowledge as to 
whether particular products contained either pseudoephedrine or 
ephedrine. When asked during cross-examination whether certain products 
(Nyquil, Dayquil, Tylenol Cold, Tylenol Sinus, Tylenol Allergy, Advil 
Cold, Tylenol PM) contained pseudoephedrine, Mr. Patel answered: ``I'm 
not sure if any one of them does or not. We have to * * * go to the 
chemical contents, or ingredients of that particular product.'' Tr. 
106. When asked whether any of these products contained ephedrine, Mr. 
Patel stated: ``I think they do.'' Id. at 107. However, none of the 
products contain ephedrine.
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    \3\ Ephedrine Two-Way tablets are manufactured by ProActive Labs 
Inc.; MiniThin Two-Way tablets are manufactured by B.D.I. 
Pharmaceutical. Gov. Ex. 5, at 2. Because of the extent to which 
these products have been found in illicit methamphetamine labs, DEA 
has sent numerous warning letters to both of these firms. See D & S 
Sales, 71 FR 37607, 37608 (2006).
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    During the inspection, Mr. Patel told the DI that ``he would be 
selling bottles'' and that ``he would not be selling blister packs 
because his customers didn't like them or want them.'' Id. at 50. At 
the hearing, however, Mr. Patel testified that he was no longer 
interested in selling gray market products but only traditional allergy 
and cold medicines such as Nyquil and Tylenol Sinus. Id. at 91, 96.
    Mr. Patel also told the DI that he had been ``an aeronautical 
engineer for eleven years,'' and that he ``had minimal experience'' in 
selling listed chemicals. Id. at 38. According to the record, 
Respondent's experience involved working on weekends in a similar 
business owned by his family that is located in Lakeland, Florida. Id.

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute list I chemicals 
is entitled to be registered unless 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.

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, 39368 (2006); Energy Outlet, 64 
FR 14269 (1999). Moreover, I am ``not required to make findings as to 
all of the factors.'' Hoxie v. DEA, 419 F.3d 477, 482 (6th Cir. 2005); 
Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005).
    In this case, I acknowledge that factors two and three would not 
bar granting Respondent a registration. I conclude, however, that 
Respondent lacks effective controls against diversion (factor one), 
lacks relevant experience in the distribution of list I chemicals 
(factor four), and intends to distribute list I chemicals to the gray 
market (factor five), a market in which the risk of diversion is 
substantial. Consistent with DEA precedents, I thus hold that 
Respondent's registration would be inconsistent with the public 
interest.

Factor One--Maintenance of Effective Controls Against Diversion

    I concur with the ALJ that the Government has not proved that 
Respondent would fail to provide adequate physical security for the 
list I chemicals stored at its facility. However, `` `prior agency 
rulings have applied a more expansive view of factor one than mere 
physical security.' '' D & S Sales, 71 FR 37607, 37610 (2006) (quoting 
OTC Distribution Co., 68 FR 70538, 70542 (2003)). A registrant is 
``required to exercise a high degree of care in monitoring its 
customers' purchases'' of list I chemical products to prevent 
diversion. Id. Relatedly, DEA has repeatedly revoked the registrations 
of list I chemical distributors for selling quantities of products that 
clearly exceeded legitimate demand and were likely diverted into the 
illicit manufacture of methamphetamine. See T. Young Associates, Inc., 
71 FR 60567, 60572-73 (2006); D & S Sales, 71 FR at 37611-12; Joy's 
Ideas, 70 FR at 33198-99; Branex, Inc., 69 FR 8682, 8693-96 (2004).
    Here, I conclude that it is likely that Respondent would not 
properly monitor its customers' purchases. Both during the pre-
registration investigation and at the hearing, Respondent's president 
demonstrated a lack of familiarity with OTC drug products. During the 
pre-registration investigation, he represented that certain products 
contained list I chemicals when they did not. At the hearing, he did 
not know which products contained which chemicals and again referred to 
products (Tylenol PM and Tylenol Arthritis) that do not contain either 
ephedrine or pseudoephedrine as if they did. Respondent's president 
further admitted that he would have to check the ingredients of the 
particular product to be sure of whether it contained a list I 
chemical. In short, his lack of such basic product knowledge does not 
inspire confidence that his firm would know which products must be 
monitored to ensure that they were not being purchased in excessive 
quantities and being diverted into the illicit manufacture of 
methamphetamine. I thus conclude that this factor support a finding 
that granting Respondent a registration would be inconsistent with the 
public interest.

Factors Two and Three--Compliance With Applicable Laws and the 
Applicant's Prior Record of Relevant Criminal Convictions

    There is no evidence that Respondent is not in compliance with 
applicable Federal, State, or local laws. Furthermore, there is no 
evidence that Respondent, or any person affiliated with it, has ever 
been convicted of a crime under either Federal or State laws relating 
to controlled substances or listed chemicals. I thus conclude that both 
factors weigh in favor of granting Respondent's application.

Factor Four--The Applicant's Past Experience in the Distribution of 
Listed Chemicals

    DEA precedent establishes 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.'' Tri-
County Bait Distributors, 71 FR at 52163. According to the record, 
Respondent itself has no experience in distributing list I chemicals. 
The ALJ found, however,

[[Page 11058]]

that Respondent's president does have ``some limited experience'' 
working on weekends at another firm which distributes list I chemicals. 
ALJ Dec. at 15.
    Distributors of list I chemicals are subject to a comprehensive and 
complex regulatory scheme. See 21 CFR Pts. 1309 & 1310. Moreover, as I 
explained in Tri-County Bait Distributors, merely working as a sales 
clerk does not establish that an applicant has relevant experience. 71 
FR at 52163. Rather, for an applicant's (or its key employee's) 
experience to be relevant, the applicant must have been actively 
involved in the fulfillment of a registrant's regulatory obligations 
and demonstrate adequate knowledge of list I products.
    While this standard may not have been clear at the time of the 
hearing, I nonetheless conclude that a remand is unnecessary. As 
explained above (and as the ALJ found), Respondent's president ``has 
little knowledge of which products on his proposed product list 
contained ephedrine or pseudoephedrine.'' ALJ Dec. at 15-16. Thus, even 
if Respondent's president had established that he had performed 
regulatory obligations, his lack of knowledge of basic product 
information would still lead me to conclude that his experience was 
inadequate. I thus hold that this factor supports a finding that 
Respondent's registration would be inconsistent with the public 
interest.

Factor Five--Other Factors That Are Relevant to and Consistent With 
Public Health and Safety

    Numerous DEA orders recognize that convenience stores and gas 
stations constitute the non-traditional retail market for legitimate 
consumers of products containing pseudoephedrine and ephedrine. See, 
e.g., Tri-County Bait Distributors, 71 FR at 52161; D & S Sales, 71 FR 
at 37608-09; Branex, Inc., 69 FR at 8690-92. DEA orders also establish 
that the sale of list I chemical products by non-traditional retailers 
is an area of particular concern in preventing diversion of these 
products into the illicit manufacture of methamphetamine. See, e.g., 
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, Inc., 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'').
    Significantly, all of Respondent's proposed customers participate 
in the non-traditional market for ephedrine and pseudoephedrine 
products. DEA 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'' and ``substantial''); Jay Enterprises, 
Inc., 70 FR 24620, 24621 (2005) (noting ``heightened risk of 
diversion'' should application be granted). 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.
    Because of the methamphetamine epidemic's devastating impact on 
communities and families throughout the country, 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, Inc., 67 
FR 76195, 76197 (2002), my predecessor denied an application observing 
that the respondent'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.'' More recently, I have denied applications explaining that an 
applicant'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 Prachi Enterprises, Inc., 69 FR 69407, 69409 (2004).
    Here, Respondent clearly lacks effective controls against 
diversion, its key employee has only limited experience in the 
wholesale distribution of list I chemical products during which he 
apparently learned very little about the products he seeks to carry, 
and yet it intends to distribute these products to non-traditional 
retailers, a market in which the risk of diversion is substantial.\4\ 
See Taby Enterprises of Osceola, Inc., 71 FR 71557, 71559 (2006). Given 
these findings, it is indisputable that granting Respondent's 
application would be ``inconsistent with the public interest.'' 21 
U.S.C. 823(h).
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    \4\ Initially, Respondent also sought to sell high strength, 
high count list I products including several brands that DEA has 
frequently found during seizures of illicit methamphetamine 
laboratories. See Gov. Exh. 5, at 2. See also OTC Distribution, 68 
FR at 70541, MDI Pharmaceuticals, 68 FR at 4236. At the hearing, 
however, Respondent expressed a willingness to carry only smaller 
packages of traditional cold and allergy medicines. See ALJ Dec. at 
11. For the reasons stated above, I nonetheless conclude that the 
Government has shown that Respondent's registration would be 
inconsistent with the public interest.
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Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(h), and 28 
CFR 0.100(b) & 0.104, I order that the application of Planet Trading, 
Inc., d/b/a United Wholesale Distributors, Inc., for a DEA Certificate 
of Registration as a distributor of list I chemicals be, and it hereby 
is, denied. This order is effective April 11, 2007.

    Dated: February 28, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 07-1103 Filed 3-9-07; 8:45 am]
BILLING CODE 4410-09-P