[Federal Register Volume 77, Number 113 (Tuesday, June 12, 2012)]
[Notices]
[Pages 35031-35054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14307]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 10-51]


4 OTC, Inc.; Decision and Order

    On September 22, 2011, Administrative Law Judge (ALJ) Gail A. 
Randall issued the attached Recommended Decision. Therein, the ALJ 
recommended that I deny Respondent's application for a Certificate of 
Registration as an importer of ephedrine, a list I chemical. Neither 
party filed exceptions to the decision.\1\
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    \1\ The ALJ initially issued a decision on July 22, 2011, to 
which both parties filed exceptions. However, after the record was 
forwarded to this Office, the ALJ requested that the record be 
returned. Subsequently, the ALJ re-issued her decision. Neither 
party filed exceptions to this decision. However, I have considered 
the exceptions which the parties submitted following the ALJ's 
issuance of her first opinion.
     All citations to the ALJ's decision are to the slip opinion as 
originally issued by her which includes a cover page and table of 
contents.
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    Having considered the record as a whole, including the parties' 
briefs, I have decided to adopt the ALJ's findings of fact and 
conclusions of law except as explained below. Because I agree with the 
ALJ's conclusion that Respondent has failed to prove that the proposed 
importation of its combination ephedrine products is ``necessary to 
provide for medical, scientific, or other legitimate purposes'' and 
thus, it is not entitled to the issuance of a rule under 21 U.S.C. 
952(a)(1) authorizing the importation of such products, this alone is 
reason to adopt the ALJ's recommendation. ALJ at 54-57. I further agree 
with the ALJ's ultimate conclusion that Respondent's registration would 
be ``inconsistent with the public interest.'' 21 U.S.C. 958(c)(2)(A); 
ALJ at 80-81. Accordingly, Respondent's application will be denied.

The Section 952 Analysis

    As the ALJ noted, in 2006, Congress enacted the Combat 
Methamphetamine Epidemic Act of 2005 (CMEA), Public Law 109-177, 120 
Stat. 256. Among the CMEA's provisions was section 715, 120 Stat. 264-
65, which amended 21 U.S.C. 952(a) by adding the listed chemicals 
ephedrine, pseudoephedrine, and phenylpropanolamine to those substances 
(i.e., narcotic raw materials and coca leaves) for which importation is 
not authorized unless the Attorney General finds the amount ``to be 
necessary to provide for medical, scientific, or other legitimate 
purposes.'' 21 U.S.C. 952(a)(1). Upon such a finding, the controlled 
substance or listed chemical ``may be so imported under such 
regulations as the Attorney General shall prescribe.'' Id. 952(a).
    In multiple cases involving applications for a registration to 
import a substance subject to section 952(a)(1), DEA has held that an 
applicant ``cannot be registered as an importer of [such substance] 
unless the [Agency] finds that [it] will be allowed to import [the 
substance] pursuant to 21 U.S.C. 952(a)(1).'' Johnson Matthey, Inc., 67 
FR 39041, 39042 (2002); see also Chattem Chemicals, Inc., 71 FR 9834, 
9835 (2006); Penick Corp., Inc., 68 FR 6947, 6948 (2003). As previously 
explained, a finding that the proposed importation complies with 
section 952(a) is ``a prerequisite to [an applicant's] registration as 
an importer'' of a substance subject to this provision. Roxane 
Laboratories, Inc., 63 FR 55891, 55892 (1998). Moreover, it is settled 
that because the applicant is the proponent of the rule authorizing a 
proposed importation of a substance subject to section 952(a)(1), ``it 
must establish by a preponderance of the evidence that such a rule can 
be issued.'' Johnson Matthey, 67 FR at 39042; see also Chattem, 71 FR 
at 9835; Penick, 68 FR at 6948.
    As the ALJ concluded, Respondent failed to establish by a 
preponderance of the evidence that its proposed importation of its 
combination ephedrine/guaifenesin product is ``necessary to provide for 
medical, scientific, or other legitimate purposes.''

[[Page 35032]]

ALJ at 56-57. Indeed, Respondent offered no evidence that importation 
of its combination product is necessary to provide for any legitimate 
purpose.
    In its post-hearing brief, Respondent asserts that its ``product 
will be strictly marketed for bronchial and asthma related conditions 
as per the Food and Drug Administration [FDA] monograph for over-the-
counter bronchodilator drugs'' and that ``[t]he FDA monograph allows 
for the use of ephedrine for bronchial and asthma related conditions.'' 
Resp. Proposed Findings of Fact, Conclusions of Law, and Argument, at 1 
& nn.1-2 (citing Cold, Cough, Allergy, Bronchodilator Products, and 
Antiasthmatic Drug Products for Over-The-Counter Human Use; Final 
Monograph for OTC Bronchodilator Products, 51 FR 35,326 (1986) 
(codified at 21 CFR part 341)). Respondent further asserts that 
``[t]here exists a strong market for [its] ephedrine product, allowing 
asthma suffers [sic] an option to obtain relief without having to 
obtain a prescription. Individuals without medical insurance or the 
ability to visit a physician immediately will be able to obtain cost-
effective relief from the comfort of their home,'' presumably because 
Respondent will sell its product over the internet. Id. at 2.
    However, the fact that the FDA approved combination ephedrine/
guaifenesin products for OTC use years ago does not establish that 
there is a continuing need for these products to treat any of the 
conditions for which these products may be lawfully marketed under the 
Federal Food, Drug Cosmetic Act, 21 U.S.C. 301-399d. Moreover, as the 
ALJ observed, Respondent produced no evidence establishing that there 
is a continuing need for combination ephedrine/guaifenesin products to 
treat any of the conditions for which they may be lawfully marketed. 
See ALJ at 55-56; see also Johnson Matthey, 67 FR at 39042-43 
(discussing testimony of a physician and expert in pharmacology that 
``derivatives manufactured from narcotic raw materials are necessary to 
the United States medical community, as there are medical demands that 
cannot be met by non-opiate narcotics'' and that ``the medical 
community continues to rely upon opium-derived alkaloids rather than 
synthetic opiate analgesics'').\2\ Nor did Respondent produce any 
evidence showing that these products have any accepted medical use 
(i.e., per a doctor's recommendation) beyond those for which they can 
be lawfully marketed,\3\ or produce any evidence that these products 
are ``necessary to provide for * * * scientific[] or other legitimate 
purposes.'' 21 U.S.C. 952(a)(1).
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    \2\ Subsequent to Johnson Matthey, other Agency decisions 
involving narcotic raw materials found, without recounting any 
medical evidence, that the proposed importations were necessary 
within the meaning of section 952(a)(1). See Chattem, 71 FR at 9835; 
Penick, 68 FR at 6948. However, these cases did not involve show 
cause proceedings brought by the Agency but rather challenges 
brought by manufacturers who sought to block the applicant's 
entrance into the market. See Chattem, 71 FR at 9834; Penick, 68 FR 
at 6947. Given that many of these entities were themselves importers 
of the same narcotic raw materials which the respective applicant 
sought authority to import, they could hardly claim that the 
importation of these substances was not necessary for legitimate 
medical uses and thus did not dispute this proposition. See Chattem, 
71 FR at 9834; Penick, 68 FR at 6949. The same does not hold here.
    \3\ Noting that in 2004, the FDA banned the marketing of 
ephedrine as a dietary supplement, the Government equates the 
statutory term ``medical purposes'' with those indications for which 
FDA has approved a drug product for marketing. See Gov. Exceptions 
at 5; Gov. Prop. Findings at 6-11 (``DEA law precludes any 
importation of ephedrine for other than legitimate medical needs and 
ephedrine is limited to asthma treatment.''). To make clear, this is 
too narrow a view of what constitutes a valid medical purpose as 
there may be bona fide medical evidence supporting a product's use, 
under a physician's supervision, for other than its FDA-approved 
indications. However, Respondent had the burden of proof on the 
issue of showing what medical purpose its product would serve and 
steadfastly maintained that it would serve only the bronchodilator 
market.
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    The ALJ nonetheless observed that some ``DEA publications * * * may 
demonstrate some need for ephedrine in the United States for the 
purpose for which the Respondent proposes to import.'' ALJ at 56 n.21 
(citing Final Rule, Registration Requirement for Importers and 
Manufacturers of Prescription Drug Products Containing Ephedrine, 
Pseudoephedrine, or Phenylpropanolamine, 75 FR 4973 (2010), and 
Established Assessment of Annual Needs for the List I Chemicals 
Ephedrine, Pseudoephedrine, and Phenylpropanolamine for 2011, 75 FR 
79407 (2010)). The ALJ thus suggested that I may wish to take official 
notice of these documents.
    However, Respondent did not file exceptions nor otherwise request 
that I re-open the record to consider these documents. Moreover, even 
were I do so, neither document establishes that the importation of 
combination ephedrine/guaifenesin products (as opposed to ephedrine 
itself) is necessary to provide for medical purposes. For example, 
while the Assessment of Annual Needs lists several yearly figures for 
ephedrine sales by registered manufacturers, it does not establish 
whether any of these sales were for combination ephedrine/guaifenesin 
products. See 75 FR at 79409. As for the Final Rule on the Registration 
of Importers and Manufacturers of Ephedrine, Pseudoephedrine, and 
Phenylpropanolamine, while it observes that all three chemicals ``are 
used to produce drug products lawfully marketed under the'' FDCA, 
including both prescription and non-prescription drugs, it provides no 
information as to the need for combination ephedrine/guaifenesin 
products to provide for medical purposes. 75 FR at 4973-74.
    Accordingly, I adopt the ALJ's conclusion that Respondent has 
failed to establish that its proposed importation is ``necessary to 
provide for medical, scientific, or other legitimate purposes.'' 21 
U.S.C. 952(a)(1). And because establishing its entitlement to a rule 
authorizing the importation is a prerequisite for Respondent's 
registration as an importer of ephedrine, its application can be denied 
on this basis alone.

The Public Interest Factors

    The ALJ also found that ``Respondent's registration would be 
inconsistent with the public interest due to its current inability to 
comply with state and FDA law, its lack of candor, and its attitude 
towards diversion.'' ALJ at 80-81. While I agree with the ALJ's 
ultimate conclusion that Respondent's registration would be 
inconsistent with the public interest, I disagree with several of her 
subsidiary conclusions.
    The ALJ found that ``the Government has established a clear 
violation by the Respondent of the FDA's misbranding provisions.'' ALJ 
at 72. The basis for this finding was the ALJ's conclusion that under 
the OTC monograph, the label on Respondent's product is required to 
contain ``under the heading `indications' '' the following statement: 
`` `For temporary relief of shortness of breath, tightness of chest, 
and wheezing due to bronchial asthma.' '' ALJ at 72-73 (quoting 21 CFR 
341.76(b) & (b)(1)). However, Respondent's proposed label does not. See 
RX 5. While this label does not comply with FDA's requirements, and its 
product would be deemed misbranded if it was introduced into interstate 
commerce, 21 U.S.C. 331(b), there is no evidence that Respondent has 
introduced this product into interstate commerce. Thus, Respondent has 
not violated the FDCA yet.
    In its Exceptions (to the ALJ's first decision), Respondent 
asserted that these were minor deficiencies which ``are easily 
rectifiable and will be corrected prior to marketing.'' Resp. 
Exceptions at 1. While I accept this assertion and conclude that by 
itself, this would not be ground to deny the application, when 
considered with

[[Page 35033]]

other evidence such as that Respondent's standard operating procedures 
(SOPs) had numerous inconsistencies with various States' laws, see ALJ 
at 75-77, I conclude that it calls into question its ability to 
properly comply with applicable Federal and State laws. See 21 U.S.C. 
823(h)(2).
    The ALJ further asserted that ``[d]espite numerous assertions to 
the contrary, there is substantial evidence that the Respondent would 
market its product [in a manner] similar to its stated competitor 
Vasapro,'' an entity, which, the ALJ found markets its product in a 
manner ``rais[ing] serious misbranding concerns.'' ALJ at 74-75 (citing 
FoF 91, 92, 102, 111, 124, & 143(d)(vi)).\4\ However, in the cited 
findings, the ALJ noted that Respondent's standard operating procedures 
required it to market its product only in compliance with the FDCA and 
the FDA's regulations; that its principal owner testified that it 
``would not sell its product for any other purpose than as a 
bronchodilator''; and that it would not be sold through a Web site (4 
Ever Fit USA) its principals own which markets fitness-related 
products, such as supplements, protein powders and weight-management 
products. See ALJ at 28 (FoF 102); 30 (FoF 111); 33 (FoF 124); and 41 
(FoF 143(d)(i)). Given that the ALJ made these findings, several of 
which were based on the testimony of Respondent's principals and that 
there is no finding that she found this testimony incredible, it is 
unclear why the findings provide substantial evidence that Respondent 
would market its products in violation of the FDCA.
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    \4\ The correct citation appears to be to FOF 143(d)(vi). See 
ALJ at 41.
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    In its brief, the Government argues that Vasapro (as well as 
Kaizen, a Canadian competitor) marketed ephedrine products for weight 
loss. See Gov. Br. 38. No further explanation was offered as to why 
Vasapro's conduct is probative of whether Respondent would violate the 
FDCA, and I conclude that it is completely irrelevant.
    The Government also points to the Web sites of two Canadian firms 
(Kaizen and Gorilla Jack) which it maintains sold ephedrine at retail 
for non-lawful purposes. Id. While the Government maintains that the 
Kaizen Web site sold ephedrine manufactured by 4 Ever Fit, a firm owned 
by Respondent's owner, the exhibit it cites as support for this 
assertion is actually that of an entity known as ``Supplement Source'' 
and not Kaizen. See GX 8. Most significantly, regarding this Web site, 
an Agency witness testified that: ``and if it works the same as it 
worked on the other sites that I was on, you would click on [the 
product category] and then you could pull up the 4 Ever Fit or 
whatever, they are naming all the brand names and 4 Ever Fit is one of 
them.'' Tr. 148. However, even ignoring the equivocal nature of this 
testimony, which strongly suggests that she did not even visit the Web 
site, none of the eleven ephedrine products shown on the printout 
include products of 4 Ever Fit. See GX 8.
    Likewise Government Exhibit 9 (the printout of the GorillaJack.com 
Web pages) establishes only that this business was selling Kaizen 
Ephedrine HCL (and not Respondent's or its related firm's product) for 
its metabolic boosting properties. See GX 9, at 8. Thus, the evidence 
pertaining to the marketing of ephedrine products by these two entities 
is not relevant in assessing whether Respondent would market its 
product in violation of the FDCA. I therefore reject as unsupported by 
substantial evidence the conclusion that Respondent intends to market 
its product in violation of the FDCA.\5\
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    \5\ In its Exceptions, the Government requests that I ``make a 
specific finding that [Respondent's] ephedrine market would be 
consumers who would purchase the ephedrine in violation of the 
Federal Food, Drug and Cosmetic Act.'' Gov. Exceptions at 1. 
However, the Government cites no authority for the proposition that 
a consumer violates the FDCA if he/she purchases an OTC drug product 
with the intent to use that product for a non-approved (but 
otherwise legal) use. Accordingly, I decline the Government's 
request.
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    This is not to say that the conduct of an applicant's customers 
(which does not involve diversion of the product into the illicit 
manufacture of methamphetamine \6\) would never be relevant in 
assessing its likely compliance with applicable laws related to listed 
chemicals. See 21 U.S.C. 823(h)(2). For example, proof that an entity 
sold products to a firm when it either knew or had reason to know that 
the firm was unlawfully marketing the product (i.e., for unapproved 
purposes) would be relevant in assessing its likely future compliance 
with applicable laws and the CSA. So too, proof that an entity 
continued to sell its product to a firm after it knew that the latter 
had engaged in illegal acts is also relevant in determining the public 
interest. See 21 U.S.C. 823(h)(4) & (5) (authorizing Agency to consider 
applicant's ``past experience'' in distributing chemicals, as well as 
``other factors as are relevant to and consistent with the public 
health and safety'').
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    \6\ Such conduct is always relevant in assessing whether a 
registrant/applicant has effective controls against diversion. See 
21 CFR 1309.71(a).
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    Here, for example, the ALJ found that one of the entities to which 
a related firm of Respondent \7\ distributed ephedrine was Better 
Bodies Nutrition, a Canadian firm which unlawfully shipped these 
products to three stores in Arizona in violation of both U.S. and 
Canadian law because it lacked both a DEA Importer's Registration and a 
Canadian Dealer's License and Export Permit. See ALJ at 22-23; see also 
id. at 68 n.26 (citing 21 U.S.C. 957 and Health Canada, Precursor 
Control Regulations Sec.  6, 7, 32). The shipments were seized by U.S. 
Customs and Board Patrol agents at Seattle International Airport, 
Washington. ALJ at 21-22.
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    \7\ The ALJ found that the product was manufactured by GFR 
Pharma, and distributed through 4 Ever Fit, Ltd., to Better Bodies 
Nutrition, the firm which sold the ephedrine to the three Arizona 
stores. ALJ at 22. There is no dispute that GFR Pharma; 4 Ever Fit, 
Ltd.; and 4 OTC are related entities, and that Mr. Richard Pierce is 
the President and CEO of all three entities. RX 4; see also ALJ at 
18, 24, 25, 27.
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    Regarding this incident, Mr. Richard Pierce, Respondent's principal 
owner (and the CEO of the related companies) testified that he had no 
knowledge that Better Bodies was selling his firm's ephedrine product 
to U.S. customers. Tr. 276. However, when asked by the ALJ what his 
business had done to address this incident, Mr. Pierce testified:

    Well, we have no control over them buying the product from us 
and shipping it without our knowledge. The regulatory body in Canada 
has been informed of that, and obviously, Better Bodies is now--my 
understanding, has dealt with Health Canada in some form or fashion 
to ensure them that they're not going to do that and understand the 
repercussions if they do.

Tr. 362.

    Notably, Mr. Pierce did not testify that his firms had discontinued 
supplying Better Bodies with ephedrine products or even that his firms 
had threatened to cut off Better Bodies if they did so again in the 
future. Indeed, in its Exceptions, Respondent acknowledges as much, 
stating that: ``Mr. Pierce iterated that he did still do business with 
Better Bodies in Canada.'' Resp. Exceptions at 6. While Respondent then 
asserts that Mr. Pierce simply ``expressed that he had no control over 
this specific illegal shipment at question,'' id., this misses the 
point. As the ALJ explained:

    GFR does have control over to whom it sells its product, and 
GFR's decision to continue to supply a company that has illegally 
handled its product reflects a general apathy towards diversion * * 
*. [T]his factor raises a concern that he would similarly turn a 
blind eye to the misuse of the Respondent's product in the United 
States.

ALJ at 80.


[[Page 35034]]


    Indeed, this Agency has previously revoked a list I distributor's 
registration based, in part, on similar testimony from its principal. 
See D & S Sales, 71 FR 37607, 37610 (2006) (holding ``fundamentally 
inconsistent with the obligations of a DEA registrant'' testimony of 
business owner that ``I could care less about who buys [my products] or 
who, you know, I have no control over the retail end of those sales. I 
drop them off to the store and I'm done''). See also R & M Sales 
Company, Inc., 75 FR 78734, 78745 (2010) (citing testimony of firm's 
owner that ``I've guess I've taken the attitude that I have no control 
on what the retail public does with the product'' as evidence of firm's 
indifference to its obligations to comply with the law).
    In its Exceptions, Respondent further argues that the ALJ 
``unfairly note[d] Mr. Pierce's attitude towards diversion as one that 
would be inconsistent with the public interest'' and that ``[t]his 
factor alone cannot qualify as the preponderance of the evidence that 
is needed to justify a denial of [its application], when all other 
factors weigh in favor of granting'' it a registration. Resp. 
Exceptions at 8.
    However, all other factors do not support granting Respondent's 
application (even ignoring the threshold question of whether it is 
entitled to a rule authorizing the importation), and in any event, it 
is settled that findings under a single factor can be sufficient to 
support the denial of an application. See Dewey C. Mackay, 75 FR 49956, 
49973 (2010), pet. for rev. denied 664 F.3d 808 (10th Cir. 2011). 
Moreover, there is additional evidence to support the denial of 
Respondent's application.
    Here, the evidence shows that Respondent is a closely-held 
corporation and that one of its shareholders is Kevin McIsaac, who was 
a principal and President of McIsaac Distribution Ltd., a firm based in 
KeLowna Bridge, British Columbia, which sold various products including 
a single entity ephedrine product under the brand of ``4 Ever Fit.'' 
Tr. 32, 34, 82; GX 20, at 23. Mr. McIsaac was also President of 
Respondent and submitted its application for a DEA registration. Id. at 
34; GX 20, at 24.
    On May 27 through 29, 2008, Inspectors from Health Canada conducted 
an inspection of McIsaac Distribution during which they found various 
violations. GX 20, at 24-28. Most significantly, Health Canada found 
that McIsaac had engaged in multiple suspicious transactions involving 
ephedrine when the firm had ``reasonable grounds to suspect that the 
transaction is related to the diversion of a precursor to an illicit 
market or use.'' Id. at 26.
    These included: (1) a transaction in which McIsaac sent more than 
15,000 bottles of ephedrine (6.048 kg) to an individual in Montreal 
``representing his business as Liquidation Depot'' while the invoice 
indicated that the shipment was to be sent to ``Bella Labs'' at an 
address in Vancouver, B.C., and (2) a shipment of 51,840 bottles of 
ephedrine (20.74 kg) which was also ``sent on behalf Liquidation 
Depot'' but ``was sent to the attention of Bella Labs'' at a different 
Vancouver address. Id. at 26. In addition, on two separate dates less 
than a week apart, McIsaac shipped 2,016 bottles (.8 kg) and 10,080 
bottles (4.032 kg) to a post office box in a Mail Boxes Etc. store in 
Richmond Hill, Ontario; however, the latter shipment was subsequently 
re-routed to a residential address in the same city. Id.
    Finally, Health Canada found that between October 8, 2007 and March 
25, 2008, McIsaac made ten sales to Liquidation Depot for a total of 
137.1 kg of ephedrine; the shipments ranged in size from 15,120 to 
51,480 bottles and several involved ``large cash deposits and related 
bank charges.'' Id. at 27. Moreover, some of the shipments occurred 
either on the same day or within days of previous shipments. For 
example, on December 21, 2007, McIsaac filled invoices for 34,560 and 
34,416 bottles, and on February 28 and 29, as well as March 3, 2008, 
McIsaac filled invoices for 40,992; 51,480; and again 51,480 bottles 
respectively. Id. at 27. Health Canada ``noted that the quantities of 
ephedrine * * * sold to Liquidation Depot during this period far 
exceeded the quantities purchased by all other clients.'' Id.
    Health Canada further advised McIsaac ``that as a licensed 
dealer,'' his firm was not permitted to ``sell a Class A precursor to a 
person for any licensed activity (export, produce, package, sell and 
provide), unless that person holds the appropriate license or is 
exempted under section 5'' of its Precursor Control Regulations. Health 
Canada also expressed its ``concerns about [McIsaac's] capacity to 
comply with the regulatory requirement to detect and record suspicious 
transactions.'' Id.\8\ While Health Canada directed Kevin McIsaac to 
submit a written corrective action plan, McIsaac notified Health Canada 
that he was cancelling his Canadian Chemical Precursor license and that 
he had sold his business to GFR Pharma, Ltd. Id. at 29-30. However, 
according to Richard Pierce, McIsaac had sold only the assets of 4 Ever 
Fit to GFR Pharma. Tr. 260.
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    \8\ Apparently, under Canadian regulations, a licensed dealer is 
only ``required to record'' and not report ``any suspicious 
transaction.'' GX 20, at 25 (citing Health Canada, Precursor Control 
Regulations 86). Under U.S. law, a regulated person must report 
suspicious transactions. See 21 U.S.C. 830(b)(1)(A).
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    At the hearing, Mr. Pierce asserted that neither Kevin McIsaac nor 
his brother are involved in the day-to-day operation of GFR Pharma and 
do not own any part of this business. Tr. 273. However, Mr. Pierce 
subsequently acknowledged that Kevin McIsaac owns ten percent of 
Respondent but then denied that he is involved in its day-to-day 
operations.\9\ Id. at 284. Mr. Pierce further testified that he owns 
sixty percent of Respondent through his ownership of 4 Pharma, LLC. Id. 
at 364. While other testimony establishes that fifteen percent of 
Respondent is owned by one Mike Schiefelbein, the President of 4 EF, 
Inc. (another firm owned by Richard Pierce through his ownership of 4 
Pharma, LLC, and which does business as 4 Ever Fit USA, id. at 280-81, 
373), this only accounts for eighty-five percent of Respondent's 
ownership.
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    \9\ An Agency DI contended that Mr. McIsaac actually owns 70% of 
Respondent. Tr. 34-35.
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    While noting that she was ``troubled by Mr. McIsaac's violations of 
Canada's regulations'' which she found ``to be more significant than 
GFR's,'' the ALJ was ``persuaded by the fact that Mr. Schiefelbein will 
oversee the day-to-day operations of the company and that Mr. McIsaac 
will have no participation in that operation.'' ALJ at 70. Unlike the 
ALJ, I find that Mr. McIsaac's ownership interest in Respondent 
(without regard to whether he will be involved in its day-to-day 
operations) provides ample reason to warrant the denial of its 
application.
    As found above, the findings set forth in the Health Canada letter 
support the conclusion that these products were likely diverted into 
the illicit manufacture of methamphetamine. As the Canadian authorities 
found with respect to the transactions, there were ``reasonable grounds 
to suspect that the transaction[s] [were] related to the diversion of a 
precursor to an illicit market or use.'' GX 20, at 25 (citing Precursor 
Control Regulation 86). In short, given the quantities involved and the 
circumstances (such as cash payments, different billing and shipping 
addresses, frequency of the transactions, shipping to a P.O. Box and/or 
re-routing the shipment to a residence, and shipping large quantities 
to non-licensed entities), there is substantial evidence that McIsaac 
sold ephedrine to customers who were likely diverting it

[[Page 35035]]

into the illicit manufacture of methamphetamine.\10\
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    \10\ Even though this conduct occurred in Canada and thus cannot 
be considered under factor two, it is actionable under either factor 
four, which authorizes the consideration of ``any past experience of 
the applicant in the * * * distribution of chemicals,'' or factor 
five, which authorizes the consideration of ``such other factors as 
are relevant to and consistent with the public health and safety.'' 
21 U.S.C. 823(h). It should be further noted that had McIsaac 
committed this conduct in the United States, he would have committed 
a felony offense. See 21 U.S.C. 841(c) (providing that ``[a]ny 
person who knowingly or intentionally * * * possesses or distributes 
a listed chemical knowing, or having reasonable cause to believe, 
that the listed chemical will be used to manufacture a controlled 
substance except as authorized by'' the CSA ``shall be fined in 
accordance with Title 18 or imprisoned not more than 20 years'').
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    In a long line of cases, ``DEA has consistently held that the 
registration of a corporate registrant may be revoked upon a finding 
that a natural person who is an owner, officer, or key employee, or who 
has some responsibility for the operation of the registrant's 
controlled substance business, has been convicted of a felony offense 
relating to controlled substances.'' Absecon Pharmacy; 55 FR 9029, 9030 
(1990) (citing cases). Likewise, the Agency has applied this rule in 
other cases where there is proof that a corporate applicant's owner, 
officer, or key employee has engaged in diversion or otherwise violated 
applicable laws. See Orlando Wholesale, L.L.C., 71 FR 71555, 71557 
(2006) (denying application noting evidence that ``one of Respondent's 
managing members had previously operated a business which distributed 
List I chemicals without a valid registration and [that Respondent] 
fail[ed] to provide any documentation that this individual no longer 
has a management or ownership interest in it'') (emphasis added); City 
Drug Co., 64 FR 59212, 59214 (1999) (holding, where former owner had 
diverted controlled substances, that the Agency ``may look to who 
exerts influence over the registrant; sometimes the bonds linking the 
former owner to the new owner are too close to ensure that the former 
owner will have no influence over the operation of the'' registrant).
    While Respondent maintains that Mr. McIsaac will have no 
involvement in its day-to-day operations, given his ownership interest 
in Respondent, which is a closely held corporation, it strains 
credulity to suggest that he will not have some influence over its 
business and policies. In any event, in making the public interest 
determination, DEA is authorized to consider an applicant's ``past 
experience * * * in the distribution of chemicals'' as well as ``other 
factors [that] are relevant to and consistent with the public health 
and safety.'' 21 U.S.C. 823(h)(4) & (5). When an applicant's ownership 
group includes a person who clearly diverted either listed chemicals or 
controlled substances, that conduct is properly considered against the 
applicant as ground to deny the application.\11\
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    \11\ I do not find it persuasive that Mr. McIsaac owns only ten 
percent of Respondent. In other contexts, an ownership interest of 
five percent by a person who has engaged in misconduct has been 
deemed sufficient to bar the entity from participating in a federal 
program. See 42 U.S.C. 1320A-7(b)(8) (authorizing exclusion from 
participation in federal health care programs of an entity 
controlled by a sanctioned individual ``who has a direct or indirect 
ownership or control interest of 5 percent or more in the entity''); 
see also id. 1320A-3(a)(3) (defining ``the term `person with an 
ownership or control interest' '' to include ``a person who * * * 
has directly or indirectly * * * an ownership interest of 5 per 
centum or more in the entity''). This is not to suggest that if Mr. 
McIsaac owned less than five percent of Respondent, his ownership 
interest would not bar granting Respondent's application.
---------------------------------------------------------------------------

    Moreover, even crediting Respondent's evidence as to the respective 
ownership interests of Mssrs. Pierce, Schiefelbein, and McIsaac, it has 
offered no evidence as to who owns the remaining fifteen percent of it. 
As noted above, DEA has long held that misconduct committed by an 
entity's officers or key employees is ground to deny an application. 
Thus, in addition to Mr. McIsaac's involvement, because Respondent has 
not disclosed who the remaining owners are, there are further grounds 
to deny the application.
    Finally, Respondent contends that it has ``demonstrated a strong 
understanding for regulations that govern the * * * sale of ephedrine 
within the United States'' and that Mssrs. Pierce and Schiefelbein have 
expressed their intent and commitment to remaining compliant with both 
federal and state laws.'' Resp. Exceptions, at 4. Yet at the hearing, 
the Government established multiple instances in which Respondent's 
standard operating procedures were inconsistent with various state laws 
applicable to the sale of ephedrine products. See ALJ at 36-39. 
Moreover, while some States have made ephedrine a scheduled drug, Mr. 
Pierce stated that he was ``unfamiliar'' with drug schedules. Tr. 345. 
Also, while Respondent seeks registration to operate in Arizona, at the 
time of the hearing, it did not have an Arizona Board of Pharmacy 
ephedrine wholesaler's license to import ephedrine into the State and 
Mr. Pierce was unaware that Respondent needed this license until it was 
pointed out to him by Government counsel on cross-examination. Tr. 371, 
443.
    In its Exceptions, Respondent argues that it ``recognize[s] the 
need to remain abreast of regulations and [has] expressed its intent to 
continuously work with regulatory counsel * * * to remain knowledgeable 
on key changes in state laws.'' Resp. Exceptions at 5. However, it is 
not too much to expect that an applicant seeking to show its intent to 
comply with applicable state laws, would produce SOPs which were not 
riddled with misstatements of those laws and which correctly reflected 
those States where its proposed method of operation would be unlawful. 
Accordingly, I find Respondent's exception unpersuasive.
    In conclusion, I hold that the Government's contention that 
Respondent would market its product in violation of the FDCA to be 
unsupported by substantial evidence. I also conclude that there is no 
basis in law for the Government's contention that a consumer violates 
the FDCA if he/she purchases an ephedrine product with the intent to 
use it for a purpose which has not been approved by the FDA.\12\
---------------------------------------------------------------------------

    \12\ However, under the CSA, ``[a]ny person who knowingly or 
intentionally * * * possesses a listed chemical [such as ephedrine] 
with intent to manufacture a controlled substance except as 
authorized by'' the CSA, or who ``possesses or distributes a listed 
chemical knowing, or having reasonable cause to believe, that the 
listed chemical will be used to manufacture a controlled substance 
except as authorized by'' the CSA, commits a felony offense. 21 
U.S.C. 841(c)(1) & (2).
---------------------------------------------------------------------------

    Nonetheless, I find that substantial evidence supports the denial 
of Respondent's application for registration. This evidence includes: 
(1) Mr. Pierce's continuing to sell ephedrine products to Better 
Bodies, notwithstanding that it had unlawfully exported ephedrine to 
three stores in Arizona, and his insistence at the hearing that he has 
no control over what his customers do with his products; (2) that on 
multiple occasions, Mr. McIsaac, who has a substantial ownership 
interest in Respondent, sold ephedrine under circumstances which 
provided reason to believe that the ephedrine would be diverted into 
the illicit manufacture of methamphetamine; (3) that even crediting Mr. 
Pierce's testimony regarding the respective ownership interests in 
Respondent, he did not account for the remaining fifteen percent; and 
(4) that even as of the date of the hearing, Respondent's SOPs still 
did not accurately reflect various State laws prohibiting its proposed 
method of distribution. Accordingly, I also adopt the ALJ's ultimate 
conclusion that Respondent's registration would be

[[Page 35036]]

``inconsistent with the public interest.'' 21 U.S.C. 823(h).
    Because Respondent has not established that it is entitled to a 
rule authorizing the importation of its combination ephedrine products 
and the Government has established that Respondent's registration would 
be ``inconsistent with the public interest,'' id., I will adopt the 
ALJ's recommended order. ALJ at 81. Respondent's application will 
therefore be denied.\13\
---------------------------------------------------------------------------

    \13\ Because there are ample grounds to deny the application, I 
conclude that it is not necessary to decide the question of whether 
the Agency can require an applicant for an Importer's registration 
to provide a customer list as a condition of granting its 
application. See ALJ at 78-79. I therefore do not adopt the ALJ's 
discussion, which suggests that because neither the Combat 
Methamphetamine Epidemic Act nor Agency regulations require that an 
importer produce a customer list at the time it seeks registration, 
the Agency cannot require such. See id.; but see 21 U.S.C. 823(h)(1) 
(directing Agency to consider whether an applicant will maintain 
effective controls against diversion); 21 CFR 1309.35 (authorizing 
Agency to ``require an applicant to submit such documents or written 
statements of fact relevant to the application as [it] deems 
necessary to determine whether the application should be granted'').
---------------------------------------------------------------------------

Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(h) and 
958(c), as well as 28 CFR 0.100(b), I order that the application of 4 
OTC Inc., for a DEA Certificate of Registration as an Importer of List 
I chemicals, be, and it hereby is, denied. This Order is effective July 
12, 2012.

    Dated: June 4, 2012.
Michele M. Leonhart,
Administrator.
Brian Bayly, Esq., for the Government
Ashish Talati, Esq., for the Respondent

RECOMMENDED RULINGS, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND DECISION 
OF THE ADMINISTRATIVE LAW JUDGE

I. Procedural Background

    Administrative Law Judge Gail A. Randall. On April 6, 2010, the 
Deputy Assistant Administrator, Drug Enforcement Administration 
(``DEA'' or ``Government''), issued an Order to Show Cause (``Order'') 
proposing to deny (1) the application of 4 OTC, Inc., (``Respondent'' 
or ``4 OTC'') to import the list I chemical ephedrine pursuant to 21 
U.S.C. Sec.  958(c)(2) and 958(d)(2), because 4 OTC's import 
registration would be inconsistent with the public interest, as that 
term is used in 21 U.S.C. Sec.  823(h); (2) 4 OTC's two applications to 
distribute the list I chemical ephedrine pursuant to 21 U.S.C. 823(h), 
because 4 OTC's distribution registrations would be inconsistent with 
the public interest, as that term is used in 21 U.S.C. 823(h); and (3) 
4 OTC's application to export the list I chemical ephedrine pursuant to 
21 U.S.C. Sec.  958(c)(2) and 958(d)(2), because 4 OTC's export 
registration would be inconsistent with the public interest, as that 
term is used in 21 U.S.C. 823(h). [Administrative Law Judge Exhibit 
(``ALJ Exh.'') 1].
    The Order asserted that 4 OTC is a company that currently sells 
over-the-counter nutritional supplements to customers who solicit such 
products over 4 OTC's website, for health and fitness. 4 OTC plans to 
import finished form, combination ephedrine from a Canadian company and 
sell the product via the internet to ultimate consumers in the U.S. and 
other countries.
    Further the Order asserted that 4 OTC's application to import 
should be denied on the basis that it did not identify its customer in 
the United States, either retail or mail order, and 4 OTC was not 
familiar with DEA laws pertaining to domestic distribution sales limits 
as well as other application laws. [Order at 2 (citing 21 U.S.C. Sec.  
823(h)(1), (h)(2), and (h)(5))].
    In addition, the Order stated that the Respondent's applications 
should be denied based on its common ownership with McIsaac 
Distribution, which merged with GFR in 2008. The Order provided that 
GFR would be the Respondent's supplier and that Health Canada cited 
both McIsaac and GFR for failure to report to Health Canada suspicious 
sales of ephedrine products, for shipping ephedrine products to 
unverified addresses and for a shortage of .008 kilograms of ephedrine 
based upon an accountability audit. [Id.].
    The Order further alleges that GFR and McIsaac's ephedrine sales 
records reveal other suspicious sales of ephedrine that were not cited 
by Health Canada but that would be violations of 21 U.S.C. 830(b)(1)(A) 
because such sales involved an extraordinary quantity or were made to 
retail outlets that do not normally sell ephedrine products, such as 
gymnasiums. [Id. (citing Sec.  823(h)(1), h(4), and (h)(5))].
    The Order alleged that although the Respondent's personnel stated 
that 4OTC's product, labeled ``4 Ever Fit,'' would be marked only as an 
OTC medication to treat asthma, 4 OTC's present customers and product 
lines are not consistent with this professed intent, and that the 
product would be imported for other than a legitimate medical purpose. 
[Id. (citing Sec.  823(h)(1), (h)(2), (h)(5) and 952(a)(1))].
    Last, the Order alleged that the Respondent's applications should 
be denied on the basis that 4 OTC's ephedrine brand product, ``4 Ever 
Fit,'' was seized at the Canadian borders when Better Bodies Nutrition 
attempted to ship it illegally into the U.S. to stores who plan to 
market the product as a weight loss product, and hence, the company has 
failed to maintain effective controls against diversion. [Id. at 3 
(citing 823(h)(1))].
    On May 7, 2010, the Respondent, through counsel, timely filed a 
letter requesting a hearing in the above-captioned matter. [ALJ Exhibit 
Exh. 3].
    On May 24, 2010, the Government filed a Motion For Summary Judgment 
And To Stay The Dates For The Parties To Submit Prehearing Statements 
(``Motion for Summary Judgment''). [ALJ Exh. 4]. Therein, the 
Government moved for summary judgment on the basis that the Respondent 
lacked a bona fide registered address. The Government stated that it 
unsuccessfully attempted to serve the Respondent with the Order to Show 
Cause at the address listed in its application as its registered 
address, 8160 Blakeland Dr., Littleton, Colorado 80125. In addition, 
the Government stated that the DEA later visited that location and 
discovered that the Respondent was not located at that address. [Id. at 
1-2].
    In a letter dated June 10, 2010, the Respondent requested to amend 
its application by changing its proposed registered address from 8160 
Blakeland Drive, Littleton, Colorado 80125, to Freeport Logistics, 431 
N. 47th Avenue, Phoenix, Arizona 85043. [ALJ Exh. 15].
    On June 14, 2010, the Respondent filed its response to the 
Government's Motion for Summary Judgment. Therein, the Respondent 
stated that it had moved to a new location in Phoenix, Arizona, and 
that the Respondent's counsel had spoken with the Government's counsel, 
and the Government's counsel had no objection to it amending its 
application to include a new registered address. The Respondent stated 
that it had already begun the process to amend its applications. [ALJ 
Exh. 5 at 1-3].
    In a letter dated November 10, 2010, the Respondent sought to 
withdraw its applications to export ephedrine, to distribute ephedrine, 
and to distribute ephedrine at retail. [ALJ Exh. 17 at 5].
    Because those requests were issued after the Order to Show Cause, 
the Respondent was required to request permission to amend its 
application and withdraw three of its application. [ALJ Exh. 17 at 3 
(citing 21 CFR 1301.16(a))].
    The Deputy Assistant Administrator granted both requests on April 
13, 2011. [Id. at 3].
    The hearing was held on January 19, 2011, at DEA Headquarters in 
Arlington, VA. It continued on March 9, 2011, in Phoenix, Arizona. [ALJ 
Exh. 14, 16].

[[Page 35037]]

II. Issue

    The remaining issue in this proceeding is whether or not the record 
as a whole establishes by a preponderance of the evidence that the Drug 
Enforcement Administration should deny 4OTC's application for a DEA 
Certificate of Registration to import the list I chemical ephedrine 
into the United States because to grant the Respondent's application 
would be inconsistent with the public interest pursuant to 21 U.S.C. 
Sec.  823(h), 958(c)(2), and 958(d)(2). [Tr. 5-7].

III. Findings of Fact

A. Stipulated Facts

    1. Ephedrine is a list I chemical. [21 CFR 1310.02(a)(3)].
    2. Ephedrine is also classified as a Scheduled Listed Chemical 
Product (``SLCP'') under the Combat Methamphetamine Epidemic Act of 
2005 (``CMEA''). 21 U.S.C. 802(45)(A); 21 CFR 1300.02(34)(i).\1\ [ALJ 
Exh. 15].
---------------------------------------------------------------------------

    \1\ The remaining stipulated facts repeat the procedural history 
of this case. [ALJ Exh. 15].
---------------------------------------------------------------------------

B. Background

1. Ephedrine
    3. The CMEA aimed to enhance controls of chemicals and equipment 
that are used in the clandestine manufacture of methamphetamine and 
other illegal substances. [Tr. 27, 242].
    4. Ma Huang and Ephedra are ephedrine products. [Tr. 94, 141].
a. Sale and Use of Ephedrine as a Dietary Supplement
    5. In 2003, the Administrator of the Department of Health and Human 
Services (``DHHS'') pulled ephedrine off of the market as a dietary 
supplement. [Tr. 141]. The ban went into effect in 2004. [Tr. 148].
    6. Ma Huang may be sold as a dietary supplement in Canada, however. 
[See Tr. 161].
    7. Using ephedrine as a dietary supplement poses serious health 
risks. According to an article introduced by the Government, ``the FDA 
has on record over 80 deaths and 1400 adverse-effect complaints, 
including strokes, coronaries, and seizures.'' [Govt. Exh. 17 at 2]. 
Further, the article notes that ``nearly all the deaths and 
complications from the use of ephedra are the result of gross abuse of 
the product . . ..'' [Id.].
    8. The DEA has not promulgated regulations restricting or 
prohibiting the importation of ephedrine into the United States for the 
purpose of weight loss. [Tr. 168]. In addition, the DEA does not 
currently prohibit the sale of ephedrine products for weight loss. [Tr. 
244]. However, since 2004, the Food and Drug Administration (``FDA'') 
has banned the sale of an ephedrine product as a dietary supplement. 
[Tr. 148; see also 69 FR 6788 (2004)].
b. Product Trends
    9. John Kronebusch is a program analyst at DEA. [Tr. 53]. He has 
worked in that capacity since 1990. [Tr. 54].\2\
---------------------------------------------------------------------------

    \2\ Mr. Kronebusch manages a database that contains firms that 
handle List I or List II chemicals. [Tr. 54]. Since 2007, he has 
also been assigned oversight of mail order firms. [Tr. 54].
---------------------------------------------------------------------------

    10. Mr. Kronebusch credibly testified that there are substantially 
more mail order reports for pseudoephedrine products than ephedrine 
products. [Tr. 60].
    11. Mr. Kronebusch testified that most of the pseudoephedrine and 
ephedrine reports are submitted by well-known national companies such 
as CVS, Drugstore Pharmacy, or Eckerd. [Tr. 61].
    12. Mr. Kronebusch testified that there has been a significant 
decline in ephedrine transactions since 2008. [Tr. 61-2]. Two 
companies, who had prior to 2009 reported significant numbers of mail 
order sales of ephedrine, closed their mail order business in 2009. 
[Id.].
2. DEA's Retailer Requirements
a. Retail Sales Limit
    13. The DEA does not require mail order distributors \3\ of 
ephedrine products to register with the DEA. [Tr. 57]. However, the DEA 
imposes daily and monthly sales limits on the amounts retailers may 
sell to one person and requires that they report their sales on the 
15th of every month to the DEA. [Tr. 35-36, 54-55]. The reports 
required by DEA must identify the purchaser of the List I chemical 
product. [Tr. 56-57]. A government ID or driver's license would satisfy 
this requirement. [Tr. 57].
---------------------------------------------------------------------------

    \3\ Retail distributors sell to non-regulated persons, i.e. 
persons that will use rather than redistribute the ephedrine 
product. [Tr. 55, 57]
---------------------------------------------------------------------------

    14. The retail sales limit for ephedrine used to be 24 grams per 
month but is now 3.6 grams per day per person, and 7.5 grams per month. 
[Tr. 35-36].
    15. The retailer is also required to keep a record of all ephedrine 
sales. [Tr. 36, 51-2, 432].
b. Self-Certification
    16. The owner of a retail distributor of list I chemicals must 
become self-certified with the DEA. [Tr. 229-230]. To do so, the owner 
must go online and follow several steps, including: teaching his 
employees who have the ability to sell the product over the counter 
about the thresholds for daily and monthly purchases and developing a 
logbook for sales. [Tr. 230]. The retailer must then display its retail 
self-certification in its store prior to selling the product. [Tr. 230]
3. DEA's Importer Requirements
    17. The DEA requires an importer to obtain an importer registration 
to import list I chemicals into the United States, and to fill out a 
Form 486, 15 days prior to any importation, notifying the DEA of an 
upcoming import. [Tr. 231-233].
a. Requirement of Providing a Customer List
    18. According to Marian Klett, a program analyst in the Office of 
Diversion Control at DEA,\4\ the DEA requires applicants for importer 
registrations, even those who have yet to go into business, to include 
in their application a list of proposed customers. This requirement 
began as DEA policy pursuant to a mandate by the Department of Justice 
that the DEA establish protocols to better regulate precursors to 
methamphetamine production. [Tr. 170-71; 445-9].
---------------------------------------------------------------------------

    \4\ Ms. Klett has been in that position since 1997 and has been 
with DEA since 1995. Ms. Klett conducts a preliminary review of 
incoming List I chemical pre-registration packages. The 
preregistration package contains all documents that are forwarded by 
the applicable field office to the DEA when a company applies for a 
DEA registration. Ms. Klett is familiar with the Combat 
Methamphetamine Act. [Tr. 119-120]. Prior to working as a Program 
Analyst, Ms. Klett was an Intel Research Specialist from 1988-1997. 
In addition, from January 2000 to February 2003, Ms. Klett was an 
Intel Analyst in the Office of Diversion Control for an LSD 
investigation. [Tr. 122].
---------------------------------------------------------------------------

    19. Ms. Klett testified that as of 2000, the DEA will not grant a 
DEA registration if an applicant does not have a customer list, because 
the agency cannot determine whether the product will be diverted. [Tr. 
446]. This is not, however, a requirement for domestic mail order 
sales, i.e. retail distributors. [Tr. 446].
    20. After the applicant provides a list of customers, the DEA will 
then verify those customers. [Tr. 447-8]. Ms. Klett testified that when 
Congress passed the CMEA, it put specific language in the act that 
mandated the DEA to ask for downstream customers from the proposed 
importer. The DEA does so for importers on its Form 486A. [Tr. 448-9].
    21. As for start-up companies, Ms. Klett testified that how the 
company ascertains its downstream customers is up to them. [Tr. 450].
    22. Ms. Klett testified that the DEA has never before entertained 
an importer application for a company that wished to sell strictly 
retail. [Tr. 453]. In addition, she testified that the form 486 
requires a customer list, which is a form that the registrant fills out 
prior to the

[[Page 35038]]

actual importation, and post registration. [Tr. 452-53].
b. Canadian Regulation of Ephedrine
    23. Diversion Investigator David Hargroder \5\ (``DI Hargroder'') 
testified about information he obtained from Health Canada, the 
Canadian agency that regulates listed chemicals. [Tr. 84]. DI Hargroder 
testified that Canada's regulation of List I Chemicals is similar to 
the DEA's. [Tr. 80]. He testified that Health Canada requires entities 
to obtain Class A Licenses. [Tr. 80].
---------------------------------------------------------------------------

    \5\ David Hargroder is a Diversion Investigator at DEA 
Headquarters. [Tr. 77]. DI Hargroder conducts chemical 
investigations involving ephedrine, pseudoephedrine, and 
methamphetamine. [Tr. 77]. DI Hargroder started his law enforcement 
career at DEA in 1980, prior to which he served as an investigator 
in various territories and worked for the New Orleans Police 
Department. [Tr. 77]. He currently serves as a staff coordinator for 
the pharmaceutical section of the Office of Divergence and Synthetic 
Chemicals (``ODS'') at DEA. He was transferred to that section only 
three days prior to the hearing, before which he served for the 
chemical section of ODS. [Tr. 78-79]. There, he was responsible for 
reviewing pre-registration investigations involving appeal. [Tr. 
79].
---------------------------------------------------------------------------

C. The Respondent

    24. The Respondent, 4 OTC, Inc. (``4 OTC'') is a company seeking to 
import finished form ephedrine products into the United States and to 
sell it to retail customers via the internet. [Tr. 33, 393].
    25. The Respondent intends to store the listed chemical products in 
a warehouse in Phoenix, Arizona. [Tr. 337]. 4 OTC is ready for 
operation but not yet up and running. [Tr. 255].
    26. The Respondent first applied for a DEA registration on August 
14, 2007. [Respt. Exh. 1].
    27. Richard Pierce, who testified on behalf of the Respondent, 
stated that 4 OTC would only sell its ephedrine product as a 
bronchodilator. [Tr. 277].
1. Initial Investigation
    28. In January of 2008, Richard Quintero, a Diversion Investigator 
for the DEA in the Denver Colorado division,\6\ traveled to the 
Respondent's proposed location at 8160 Blakeland Drive, Unit H, 
Littleton, Colorado 80125. [Tr. 27-28].
---------------------------------------------------------------------------

    \6\ [Tr. 25; Govt. Exh. 12 at 1]. DI Quintero has worked in that 
capacity for 12 years. [Tr. 26]. DI Quintero was assigned to 
investigate the List I chemical applications of the Respondent. [Tr. 
27].
---------------------------------------------------------------------------

    29. During that visit, DI Quintero met with the Respondent's Vice 
President, Mike Schiefelbein. DI Quintero asked Mr. Schiefelbein basic 
information about 4 OTC, including the company from whom the Respondent 
intended to import ephedrine, the person who would maintain record-
keeping and security, and the Respondent's intended customers. [Tr. 28-
29].
    30. In July of 2008, DI Quintero returned to the Respondent's 
proposed location, at 8160 Blakeland Drive, to conduct a second 
investigation of 4 OTC. [Tr. 29]. On that visit, DI Quintero was 
accompanied by Dan McCormick, another Diversion Investigator from the 
Denver, Colorado field division. [Tr. 30].
    31. However, on that visit the Respondent was no longer located in 
Unit H; it was then located in Unit C of the same address. [Tr. 29]. 
The Respondent was renting a small part of this warehouse from Allison 
Medical Supply on a month to month basis per an oral agreement. [Govt. 
Exh. 12 at 1-2]. The Respondent had advised the DEA of the new address 
via telephone yet had not submitted a written request for an address 
modification. [Govt. Exh. 12 at 1].
    32. On May 12, 2010, DIs Quintero and McCormick returned to Unit C. 
[Tr. 39]. The receptionist told the DIs that 4 OTC was no longer at 
that location. The receptionist stated that the Respondent had moved to 
Arizona and not left a forwarding address. [Tr. 39]. The local post 
office also had no record of a forwarding address for 4 OTC. [Tr. 40; 
Govt. Exh. 12 at 2]. The Respondent had not advised the DEA of the new 
address. [Govt. Exh. 12].
2. Current Location
    33. Respondent is currently located at Freeport Distribution's 
Warehouse, 431 N. 47th Avenue, Phoenix, AZ 85043. [Resp. Exh. 9 at 1]. 
The warehouse is also occupied by other tenants. [Tr. 396-97].
    34. Mr. Pierce testified that the Respondent's facility was 
inspected by the DEA and that, to his knowledge, the agency did not 
have any issues with the security. [Tr. 285]. In addition, the 
Respondent hired a consultant, John Mudri,\7\ who inspected the 
facility and testified he observed where the ephedrine product would be 
located, whether there were alarm transceivers, the doors, gating, and 
who had access. [Tr. 410-11]. He testified that the Respondent's 
security features are ones that an entity would consider if securing 
Schedules III through V controlled substances and thus are greater than 
that required for scheduled listed chemicals. [Tr. 410-412].
---------------------------------------------------------------------------

    \7\ [Tr. 380, 398]. Mr. Mudri began working for DEA as a 
Diversion Investigator in 1972 in the Cleveland, Ohio branch. He 
then served as a Senior Investigator for that branch from 1974-1979. 
From 1979 to 1986, he served as an Investigative Supervisor in the 
Detroit, Michigan branch and later served in the same capacity in 
Tampa, Florida. He became a Staff Coordinator for the Diversion 
Policy Section of DEA in 1993, and held that same position in the 
Diversion Liaison Section from 1995-1996. From 1996-1998, he was the 
Chief of the DEA's Domestic Chemical Operations section. He then 
became a Senior Investigator again in 1998 for the Tampa, Florida 
branch, after which he left DEA in 2001. [Respt. Exh. 11 at 2]. In 
addition to consulting, as well as other professional activities, he 
currently teaches a course called Controlled Substances Laws in the 
University of Florida graduate pharmacy program. [Tr. 401-2].
---------------------------------------------------------------------------

    35. Respondent introduced a document from Freeport Distribution 
which describes the security and building features of the warehouse. 
[Resp. Exh. 9]. Mr. Mudri testified that this document accurately 
reflects the Respondent's warehouse security. [Tr. 410-412]. Among 
those listed, the Respondent stated that all warehouse employees 
undergo background checks, including screens for substance abuse, that 
the warehouse is guarded by two guards during non-operational hours but 
guards do not have keys or access to the facility, that there are 
cameras in place, and that the facility is completely fenced with an 8 
foot fence topped with razor wire. [Respt. Exh. 9 at 1]. The document 
further states that ``all Freeport contractors for hire must show proof 
of background checks for anyone entering'' the facility. [Resp. Exh. 9 
at 1].
3. Respondent's Source
a. McIsaac Distribution
    36. The Respondent originally listed McIsaac Distribution as the 
source from which it would import ephedrine. [Govt. Exh. 11]. McIsaac 
Distribution is a Canadian distributor of sports nutrition products 
such as protein powders, and other natural health products. [Govt. Exh. 
20 at 17]. It used to sell a product called 4 Ever Fit, a single-entity 
ephedrine product. It sold 4 Ever Fit as a muscle building and weight 
loss product in Canada to mostly retail locations such as gyms and 
health and fitness stores. [Tr. 122-129; Govt. Exh. 20 at 6-8].
    37. McIsaac Distribution is located in KeLowna Bridge, Columbia in 
Canada. [Tr. 32, 82].
    38. Kevin McIsaac is the president of McIsaac Distributions. [Tr. 
34, 82; Government Exhibit (``Govt. Exh.'') 12 at 1]. He was also the 
original signee on the Respondent's importation application. [Tr. 34].
    39. McIsaac Distribution possessed a Class A precursor license in 
Canada, that it later withdrew. [See Govt. Exh. 10].\8\ McIsaac 
Distribution relinquished its Class A precursor license because it was 
``no longer able to sell ephedrine.'' [Tr. 260].
---------------------------------------------------------------------------

    \8\ On its precursor license application, the company stated 
that it intended to purchase ephedrine, ``MaHuang,'' from GFR and 
Biopark Ltd. [Govt. Exh. 20 at 19].

---------------------------------------------------------------------------

[[Page 35039]]

    40. In 2008, McIsaac Distribution sold certain assets, including 
the 4 Ever Fit product, to GFR Pharma. [Tr. 33, 106, 258, 262, 294; 
Respt. Exh. 8; Govt. Exh. 20 at 30, 46-47].
    41. GFR Pharma Ltd. (``GFR'') is a company located in Maple Ridge, 
British Columbia, Canada. [Tr. 33; 252]. The company used to be named 
GFR Nutritionals Ltd. [Govt. Exh. 20 at 5]. Prior to its purchase of 
assets from McIsaac Distribution, GFR Pharma manufactured and sold 4 
Ever Fit to McIsaac Distribution. [Tr. 294-5].
    42. Prior to the sale of certain assets to GFR Pharma, McIsaac 
Distribution was inspected by Health Canada. [Govt. Exh. 20 at 24]. 
Health Canada noted several concerns. First, it noted that McIsaac 
Distribution had failed to obtain the Minister's approval prior to 
making changes of its internal protocols as cited in its initial 
application. Specifically, in contrast to what was stated on its 
application, McIsaac failed to lock the drawer that contained the key 
to the Class A precursor cage. In addition, McIsaac failed to keep an 
ephedrine movement log. Next, Health Canada noted McIsaac's 
recordkeeping violations, including failing to record cage ephedrine 
movements and failing to record the full name of person(s) accessing 
the cage. Last, Health Canada noted several ``suspicious transactions'' 
that the company failed to record. A suspicious transaction is one 
where ``there are reasonable grounds to suspect that the transaction is 
related to the diversion of a precursor to an illicit market for use.'' 
Some of the factors that Health Canada lists as to being indicative of 
diversion are: (1) delivery by dubious route; (2) Using a private house 
or post office box number as the address from which the order is made; 
and (3) irregular order and quantities. The agency found two 
transactions that were delivered by dubious route, where a combined 
total of 66,960 bottles of hydrochloride ephedrine (26.778 Kg) were 
sent from McIsaac Distribution via Liquidation Depot to Bella Labs. 
Each shipment listed a separate address for Bella Labs, and the first 
shipment's address for Bella Labs was deemed not a legal address. Next, 
the agency found two instances where a combined total of 12,096 bottles 
of ephedrine chloride (4.832 Kg) were shipped to a post-office box in a 
Mail Boxes, Etc., of which the second shipment was rerouted to a 
residential address. The agency then found that McIsaac Distribution's 
largest sales between April 27, 2007, and May 27, 2008, were to 
Liquidation Depot (a total of 341,952 bottles of hydrochloride 
ephedrine were sold) and ``these transactions were * * * suspicious 
because they were triggered by large cash deposits and related bank 
charges.'' Health Canada noted that in light of the foregoing it had 
``strong concerns about [McIsaac Distribution's] capacity to comply 
with the regulatory requirement to detect and record suspicious 
transactions.'' [Govt. Exh. 20 at 24-27].\9\
---------------------------------------------------------------------------

    \9\ Ms. Klett found it most noteworthy that Health Canada 
believed there were ``suspicious transactions'' between McIsaac and 
its purchasers that McIsaac failed to report to Health Canada. Ms. 
Klett testified that the DEA finds any kind of cash transaction, 
above the retail level, suspicious. [ Tr. 136].
---------------------------------------------------------------------------

    43. In response to those suspicious transactions, on November 19, 
2008, Health Canada ordered McIsaac Distribution to submit a ``written 
corrective action plan'' to it by December 19, 2008. [Govt. Exh. 20 at 
28; Tr. 159]. Prior to that order, however, on November 17, 2008, 
McIsaac Distribution notified Health Canada, by email, of its sale to 
GFR. On November 19, 2008, Health Canada received an email from McIsaac 
Distribution reflecting its desire to close its Class A Precursor 
License. [Govt. Exh. 10]. On December 3, 2008, McIsaac Distribution 
faxed Health Canada a document regarding the closure of its Class A 
Precursor License. [Govt. Exh. 20 at 30].
    44. A review of the 4 Ever Fits sales list, while that product was 
sold by McIsaac Distributions, revealed an internet sale of 10 bottles 
of ephedrine hydrocholoride 8 mg to Marcy LeBlanc, whose address could 
not be confirmed, and a sale of 96 bottles of ephedrine hydrochloride 8 
mgs to Body FX, whose address also could not be confirmed. [Tr. 139-
140; Govt. Exh. 20 at 48].
    45. In addition, many of 4 Ever Fit's customers as of 2007 were 
health and fitness stores. [See Gov't. Exh. 20 at 6-15]. A few of those 
customers contained on that list had addresses in the United States. 
[See id. at 6, 15 (listing 12 locations for Bally Total Fitness in 
Chicago, Illinois and one location for Vitamin World in New York)]. 
However, a second report documenting actual ephedrine sales for January 
of 2007, fails to record any sales of the 4 Ever Fit product to U.S. 
companies. [Id. at 41-44].
b. GFR Pharma, Ltd.
    46. The Respondent maintains that it will purchase its ephedrine 
product from GFR Pharma (``GFR'') and not McIsaac Distribution. [Tr. 
Govt. Exh. 11 at 2].
    47. Richard Pierce is the President and CEO of GFR. [Tr. 252]. As 
President and CEO of GFR, Richard Pierce runs the day-to-day operations 
of the corporation, including overseeing quality control, purchasing, 
sales, and marketing. [Tr. 252]. He has dealt with the sale of 
ephedrine since 2004. [Tr. 252].
    48. According to Mr. Pierce, Kevin McIsaac has no role at GFR 
Pharma. [Tr. 259].
    49. GFR currently has its own Canadian precursor license. [Resp. 
Exh. 8; Tr. 102]. ``As a holder of this license, GFR is authorized to 
produce, package, sell, import, and export precursor substances such as 
ephedrine (both ephedrine salt and Ma Huang).'' [Govt. Exh. 11 at 2].
    50. GFR manufactures ephedrine by purchasing the raw material from 
a registered supplier with a precursor license. The quantities of that 
purchase are verified by the Canadian government. The raw material is 
then immediately put in a holding cage that is locked and monitored by 
camera. The ephedrine is then quality-control inspected and released 
for manufacturing. The ephedrine is then blended with the proper 
ingredients. The raw material is placed back into the holding cage. The 
product is once again removed and placed in a tablet press, placed back 
into the cage, and then sent to be packaged, after which it is once 
again placed in the cage. [Tr. 256-57].
    51. GFR manufactures approximately 200 kilograms of ephedrine per 
year. [Tr. 253].
    52. GFR converts that ephedrine into 25 million tablets. [Tr. 253-
254, 257].
    53. The brand of ephedrine product that GFR markets in Canada is 4 
Ever Fit. [Tr. 254]. Richard Pierce testified that the product is used 
as a decongestant in Canada. [Tr. 254]. However, 4 Ever Fit's customer 
list suggests that product is sold as a dietary supplement in Canada. 
[See Govt. 20 at 42-44 (listing the purchase of 4 Ever Fit by numerous 
health food stores and gyms)].\10\
---------------------------------------------------------------------------

    \10\ In addition, I do not find this statement of Mr. Pierce's 
credible, as it is unreasonable that persons would purchase a 
product labeled ``4 EverFit'' as a nasal decongestant. In addition, 
he is not qualified to testify as to how his product is actually 
used by GFR's customers. T
---------------------------------------------------------------------------

    54. Mr. Pierce testified that he has never sold this product to a 
U.S. based company because that would be illegal. [Tr. 254]. Mr. Pierce 
testified that in Canada ``we can sell it to health food stores * * * 
to sports nutrition stores, a wide variety [of stores].'' [Tr. 254].
    55. The DEA obtained information from Health Canada regarding GFR 
Pharma. including any and all audits, photos, copies of registration 
forms, product distribution lists, copies of all Canadian licenses, 
formal letters between Health Canada and the

[[Page 35040]]

company, export documents, documents regarding the sale of McIsaac 
Distribution to GFR Pharma, documents regarding the transfer of 
products from McIsaac to GFR Pharma, and documents regarding common 
ownership of the GFR and McIsaac Distribution. The DEA also obtained 
the FDA's records regarding the two companies. [Govt. Exh. 20 at 1-3; 
Tr. 90-91]. All of the records that the DEA obtained related to the 
ephedrine and pseudoephedrine products. [Tr. 91].
    56. In 2010, GFR had a shortage of 79,000 tablets. [Tr. 257]. They 
reported this shortage to Health Canada. [Tr. 258]. Health Canada did 
not cite GFR Pharma, however, they did make a recommendation on how the 
company could account for the loss. [Tr. 258]. Mr. Pierce stated that 
the loss was just a ``manufacturing loss.'' [Tr. 260].
    57. On an unspecified date, Health Canada inspected GFR Pharma and 
noted the following concerns: (1) ``although only two GFR designated 
employees have access to raw bulk ephedrine (possess the physical 
keys), all 61 employees conceivably have access to ephedrine at other 
stages of production (i.e. blending, bulk tableting, packaging, as well 
as shipping);'' (2) record could not be found for certain inbound 
transportation shipments; (3) no records exist to quantify past 
destruction; and (4) there are conflicts between processing stages in 
GFR's records, namely the actual yield is less than the projected 
yield; and (5) ``GFR does not maintain a precursor access log. No 
record exists tracking personnel accessing stock either within the 
precursor cage, or within the overall warehouse.'' [Govt. Exh. 20 at 
22].
    58. Mr. Pierce testified that Health Canada would not renew its 
license if it found serious violations. [Tr. 271].
    59. In Mr. Pierce's experience, he has dealt with Health Canada 
regarding licensure and inspection, including surprise inspection. [Tr. 
252-53]. GFR has been inspected by Health Canada on three occasions. 
[Tr. 253]. GFR must re-apply for its licensure yearly and its license 
has been renewed by Health Canada every year. [Tr. 252-253]. The DEA 
was not informed of any citations by Health Canada of GFR. [Tr. 164].
    60. The DEA reviewed Health Canada's records on the sale of the 
precursor product, 4 Ever Fit-Ephedrine Hydrochloride 8 mgs by GFR to 
various companies from January 6, 2009 to January 29, 2009. [Tr. 129; 
Govt. Exh. 20 at 42-44]. None of the companies listed in that report 
had addresses in the United States. [Govt. Exh. 20 at 42-44]. The DEA 
did not obtain any evidence that GFR Pharma marketed 4 Ever Fit as a 
weight loss product and sold it as such into the United States. [Tr. 
173].
(1) Customs Seizure
    61. During its investigation, the DEA found evidence that GFR 
Pharma was the source of ephedrine that a third party had purchased and 
attempted to ship illegally into the United States. [Tr. 86-87]
    62. On or about January 27, 2010, U.S. Customs and Border Patrol 
seized three packages with suspicious labels at Seattle International 
Airport, Washington. [Tr. 86, 212]. The packages were en route to 
Phoenix, Arizona. [Tr. 86]. The sender listed on the packages was 
Better Bodies Nutrition. [Tr. 87, 217-18; Govt. Exh. 15 at 2; Govt. 
Exh. 20 at 6].
    63. Better Bodies Nutrition is a company that sells nutritional 
supplements via the internet. [Govt. Exh. 15]. Better Bodies Nutrition 
Web site markets ephedrine and advertises the sale of the 4 Ever Fit 
Product. [Govt. Exh. 15; Tr.144]. Specifically, they have purchased the 
8 mg ephedrine hydrochloride product. [See Tr. 143-44].
    64. The products originated from GFR Pharma. [Tr. 87]. While, 
Better Bodies Nutrition is not a direct customer of GFR Pharma, GFR 
supplies to 4 Ever Fit, Ltd. who then sells to Better Bodies. [Tr. 275, 
368]. Regardless, GFR has knowledge of where 4 Ever Fit sells its 
product. [Tr. 368].
    65. The products were destined for a company called One Stop 
Nutrition in Phoenix, Arizona. [Tr. 113].
    66. The shipping labels indicated that the packages contained 
``vitamins.'' [Govt. Exh. 14; see also Tr. 214].
    67. After customs observed the suspicious shipping labels, they 
opened the packages to confirm the contents. [Tr. 212-13]. Each box 
contained 48 bottles, labeled ``4 Ever Fit.'' [Tr. 215]. Each bottle 
contained 50/8 mg ephedrine tablets. [Tr. 215].
    68. On February 4, 2010, DI Morgan, U.S. Postal Services, and a 
member of the Arizona Board of Pharmacy visited all three addresses 
listed on the seized packages and discovered all three were One Stop 
Nutrition Stores, which sold health and body supplements and vitamins. 
[Tr. 220-221]. In addition, all three stores shared parking lots with 
fitness clubs. [Tr. 221-222]. Each store had ordered one box, 
containing 48 bottles, of the 4 Ever Fit product. [Tr. 240].
    69. The One Stop Nutrition stores were located in Scottsdale, 
Tempe, and Phoenix, AZ. [Tr. 222, 224, 225]. DI Morgan spoke with each 
of those store's owners, respectively, Justin Denis, Brian Kerry, and 
Matt Denis [Tr. 223, 224, 225]. Each of those individuals stated that 
they purchased the 4 Ever Fit product to replace a product called 
Vasapro, which was no longer available. [Tr. 223, 224, 226]. Each owner 
intended to sell 4 Ever Fit as a weight loss product. [Tr. 223, 225, 
228].
    70. While the Tempe and Phoenix One Stop Nutrition Stores were 
self-certified with DEA, Justin Denis had not self-certified his 
location in Scottsdale. [Tr. 231].
    71. In addition, none of the One Stop Nutrition stores that DI 
Morgan visited had importer registrations nor did they fill out a Form 
486 prior to their orders of 4 Ever Fit from Better Bodies Nutrition. 
[Tr. 232-233].
    72. Similarly, Better Bodies Nutrition did not have a Canadian 
export license. [Tr. 115-16].
    73. Mr. Pierce testified that he had no knowledge of Better Bodies 
Nutrition selling or trying to sell 4 Ever Fit into the United States. 
[Tr. 276]. When questioned whether GFR had done anything about its 
relationship with Better Bodies Nutrition to ensure that the improper 
shipment doesn't occur again, Mr. Pierce testified ``[w]e have no 
control over them buying the product from us and shipping it without 
our knowledge. [Health Canada] . . . has been informed'' and it is his 
understanding that they have dealt with Better Bodies to ensure that 
they don't attempt to ship into the United States and are familiar with 
the repercussions of that. [Tr. 362].

D. Other Entities

1. 4 Ever Health Distribution Ltd.
    74. 4 Ever Heath Distribution Ltd. is a Canadian company owned by 
Richard Pierce. [Tr. 280].
    75. 4 Ever Health Distribution distributes the 4 Ever Fit product 
in Canada. [Tr. 280].
2. 4 Ever Fit Companies
    76. There are two 4 Ever Fit companies: 4 Ever Fit 2008 Ltd. (``4 
Ever Fit''), a Canadian company, and 4EF Inc. d/b/a 4 Ever Fit USA 
(``4EF USA''), a United States company. [Respt. Exh. 4; Tr. 280-81].
3. 4 Ever Fit--Canada
    77. Richard Pierce is also the President and CEO of 4 Ever Fit. 
[Tr. 252].
    78. 4 Ever Fit sells sport supplement style products such as 
proteins as well as the 4 Ever Fit product. [Tr. 255, 280].
    79. Mr. Pierce testified that he does not sell ephedrine products 
directly into the United States. [Tr. 268].

[[Page 35041]]

4. 4 Ever Fit--USA
    80. 4EF Inc., d/b/a 4 Ever Fit USA (``4EF USA'') is a United States 
company. [Tr. 280-81].
    81. It is owned by Richard Pierce, through a company called 4 
Pharma, LLC. [Tr. 280].
    82. Mike Schiefelbein is the president of 4EF USA. [Tr. 373]. It is 
currently based in Peoria, Arizona. [Tr. 373].
    83. Mr. Schiefelbein has been in the sports nutrition supplement 
business for approximately 13 years. He has prior experience selling 
ephedrine as a dietary supplement when it was legal to do so in the 
United States. [Tr. 374-5].
    84. 4 Ever Fit USA does not sell ephedrine products. [Tr. 374]. It 
only sells supplements, nutritional products, protein powders, amino 
acids, weight gainers, weight-management products to health stores and 
fitness facilities in the United States. [Tr. 281, 365, 374].
    85. A small percentage of 4EF USA's business is end users. Most of 
their customers are brick-and-mortar retailers and distributors. [Tr. 
374, 389]. Approximately 10-15% of its business is internet sales. [Tr. 
391].
    86. 4EF USA's products will be kept in the same warehouse as 4 
OTC's products, however, the 4 OTC product will be kept separate in a 
cage. [Tr. 395]. In addition, 4OTC will have separate access logs and 
inventory logs than 4EF USA. [Tr. 395-6].
5. 4 Pharma, LLC
    87. Richard Pierce owns 4 Pharma, LLC (``4 Pharma''). [Tr. 363].
    88. 4 Pharma owns 4EF USA. [Tr. 280].
    89. 4 Pharma also owns 60% of 4 OTC. [Tr. 364].
    90. 4 Pharma will not be part of the distribution chain of 
ephedrine from GFR to 4 OTC, Inc. [Tr. 363].
6. Vasapro
    Megapro is a U.S. company that sells Vasapro, an ephedrine HCL 
product. Megapro markets Vasapro as a bronchodilator expectorant. 
[Govt. Exh. 5; Tr. 144-45]. Specifically, Megapro's Web site states 
that the product is ``taken for the temporary respite of shortness of 
breathing, accumulation in the chest and wheezing because of bronchial 
asthma . . . [and it] also helps slime relaxation and empowers thin 
bronchial secretions to draining out bronchial tubes.'' [Govt. Exh. 5 
at 1]. However, that Web site is also titled in large font ``Ephedrine 
Weight Loss Products.'' [Id.]. In addition, the left hand side of the 
page has links for other ``ephedrine weight loss products.'' [Id.]. The 
right hand side of the Web site contains the following statements:
    c. ``Using Ephedrine To Burn Fat, Increase Strength and Muscle.''
    d. ``Ephedrine Effects on Fat Loss and Muscle Growth . . . When 
administered, ephedrine noticeably stimulates the central nervous 
system, increasing the heart rate and has an overall heat producing 
(thermic) effect on most tissues in the body--this includes muscle and 
fat tissue, helping the user burn more body fat, as well as having 
stimulatory effect on other target cells.''
    e. ``Ephedrine Protects Lean Tissue (Muscle) . . . Researches show 
that Ephedrine plus Caffeine combo protects lean tissue (muscle) while 
on reduced calorie diets.'' [Id.].
    91. Mr. Pierce testified that Vasapro is the only competitor that 
he could think of for 4 OTC as he is not familiar with other companies 
selling ``the combinations.'' [Tr. 314].
7. Other Retail Sellers of Ephedrine Product
    92. SupplementSource is a Canadian company that sells the 4 EverFit 
product via the internet. [Tr. 147-8; Govt. Exh. 8 at 1].
    93. There are other companies that market ephedrine bronchodilators 
similar to how Megapro markets Vasapro. GorillaJack.com (``Gorilla 
Jack'') is a company that sells Kaizen Ephedrine HCL 8 mg via the 
internet. [Govt. Exh. 9 at 8]. Its Web site states that it will ship 
any of its products anywhere in the world as it is impossible for them 
``to keep up with all the regulations/laws in every country.'' [Tr. 
150; Govt. Exh. 9 at 4]. Gorilla Jack markets the Kaizen ephedrine 
product as an oral and decongestant yet also notes that the drug ``has 
strong metabolic boosting properties . . . [and] [d]espite its 
effectiveness as a . . . body fat reduction product, it can only be 
officially sold as an oral nasal decongestant.'' [Govt. Exh. 9 at 18]. 
There is no relationship between Gorilla Jack and GFR Pharma. [Tr. 163-
4]. To the best of Mr. Pierce's knowledge, GFR Pharma does not sell to 
this company. [Tr. 279].

E. Respondent's Ownership and Operation

    94. Kevin McIsaac signed 4 OTC's DEA applications. [Tr. 34].
    95. Richard Pierce is the President and CEO of 4 OTC. [Tr. 252]. 
Mr. Pierce also testified that he is the majority owner of 4 OTC. [Tr. 
279, 284]. He testified that he owns 4 OTC, Inc. through 4 Pharma LLC. 
[Tr. 364].
    96. Mr. Schiefelbein owns fifteen percent (15%) of 4 OTC. [Tr. 35, 
376].
    Mr. Schiefelbein testified that he fully intends to comply with all 
state, local and federal regulations. [Tr. 380]. He also testified that 
he has no prior convictions. [Tr. 380]. Mr. Schiefelbein testified that 
he will oversee the day-to-day duties of 4OTC. [Tr. 392-3].
    97. According to DI Quintero's investigation, Kevin McIsaac owns 
seventy percent (70%) of 4 OTC. [Tr. 34-35]. However, according to Mr. 
Pierce's testimony, Kevin McIsaac only owns ten percent (10%) of 4 OTC 
and Mr. McIsaac is not involved in the day-to-day operations. [Tr. 
284]. If in fact, Kevin McIsaac only owns 10% of 4 OTC, then that 
leaves 15% of 4 OTC unaccounted for. [See FOF 103 (Mr. Schiefelbein 
owns 15%); FOF 102, 95 (Mr. Pierce owns 60% of the Respondent through 4 
Pharma)]. Accordingly, I will not make a finding as to the actual 
ownership interest of Kevin McIsaac in the Respondent.
    98. Mr. Schiefelbein informed DEA Diversion Investigators that 4 
OTC intended to procure the ephedrine from McIsaac Distribution. [Tr. 
31]. At the hearing, however, Mr. Pierce testified that GFR Pharma is 
the supplier of ephedrine for the Respondent. [Tr. 289].
    99. Mr. Pierce testified that Kevin McIsaac will have ``nothing to 
do with the company,'' as he will be located in Canada and not in 
Phoenix. He also testified that he, Mr. Schiefelbein, and ``[their] 
quality control . . . office in Canada'' will be in charge of shipping 
the ephedrine from GFR Pharma down to Phoenix. [Tr. 296].
    100. Mr. Schiefelbein stated that his sale of ephedrine would be 
conducted 100% via the internet. [Tr. 33].
    101. Mr. Pierce testified that 4 OTC would not sell its product for 
any other purpose other than as a bronchodilator. [Tr. 277]. 4 OTC only 
intends to sell its product on a retail level to end users. [Tr. 393].
    102. 4 OTC is kept separate from 4EF USA to avoid ``comingling of 
products and product categories.'' [Tr. 375].

F. The 4 OTC Product

    103. The 4 OTC product will be sold as a combination of ephedrine 
and guaifenesin. [Tr. 302; Resp. Exh. 5]. The product will come in a 
12.5 mg ephedrine/200 mg guaifenesin formula, a 25 mg ephedrine/400 mg 
guaifenesin formula, and a 12.5 mg ephedrine/400 mg guaifenesin 
formula. [Tr. 306-07]. Mr. Pierce is not familiar with any other 
company selling a 12.5 ephedrine/400 mg guaifenesin combination product 
in the United States. [Tr. 308].
    104. Mr. Pierce testified that he inherited these formulas and that 
his understanding of the reasons for having

[[Page 35042]]

the different kinds was so that there was a regular and an extra 
strength product. [Tr. 306-7]. His consultant testified that he has 
mostly seen a 12.5/200 ephedrine/guaifenesin product and less a 25/400 
mg combination product. [Tr. 423]. He has never seen a 12.5/400 mg 
product. [Tr. 423-4].
    105. Neither the Respondent nor its owners have any experience in 
dealing with guaifenesin. [Tr. 305]. GFR Pharma currently produces a 
single entity product in Canada. [Tr. 303-4].
    106. Mr. Pierce believes his quality-control department contacted 
the FDA about bringing this product into the United States.\11\ [Tr. 
307].
---------------------------------------------------------------------------

    \11\ The record contains no further information about this 
contact.
---------------------------------------------------------------------------

    107. Mr. Pierce testified that he believes that these products meet 
the FDA's criteria as far as quantities of listed chemical products 
allowed based on Mr. McIsaac's representation to him that that was the 
case when he purchased the company. [Tr. 309-11].
    108. GFR will manufacture the ephedrine/guaifenesin product in the 
same facility that it manufactures the 4 Ever Fit product. [Tr. 311-2].
    109. To make the 4 OTC product GFR must increase the size of the 
tool that currently makes its single entity ephedrine product to 
account for the additional excipient, guaifenesin. It must also add 
more binders and fillers to hold that product together. GFR will then 
quality control that product. [Tr. 312-14].

G. Marketing and Sale of the Respondent's Product

    110. Throughout the hearing, representatives of the Respondent 
maintained that it would only sell its product as a bronchodilator in 
the United States. Indeed, Mr. Pierce testified that 4 OTC would not 
sell it for any other purpose. [Tr. 277, 290-91]. Mr. Pierce testified 
that the guaifenesin is intended to bring up the mucous in the body and 
help loosen it up. [Tr. 304].
    111. During his initial interview with DIs Quintero and McCormick 
in July of 2008, Mr. Schiefelbein gave the DI's Standard Operating 
Procedures (``SOPs'') for the Respondent. [Tr. 29, 33]. Those SOPs 
included a brand label for the 4 Ever Fit product. [Tr. 34]. The 
Respondents current SOPs contain the same label without the words ``4 
Ever Fit.'' [Tr. 47-48; Respt. Exh. 5].
    112. The label that Respondent intends to use for its product reads 
``eases breathing for asthma patients by reducing spasms of bronchial 
muscles. For the temporary relief of bronchial asthma.'' [Resp. Exh. 5 
at 1; Tr. 290].
    113. Mr. Pierce testified that 4 OTC had yet to devise a ``brand 
name'' that would go on the actual labels. He stated that the company 
did not intend to place the 4 Ever Fit logo on the package of the 4 OTC 
product. He stated that ``we're just going to sell it as the name 
ephedrine hydrochloride.'' [Tr. 299-301].
    114. Mr. Schiefelbein testified that 4 OTC will not use the 
customer base of 4 Ever Fit to sell the ephedrine product. [Tr. 377]. 
However, when DI Quintero asked Mr. Schiefelbein for a customer list, 
he was unable to provide one. [Tr. 28-29].
    115. Mr. Pierce testified that he did not conduct any market 
research, investigating the potential customer base for the 4 OTC 
product, prior to his purchasing of his interest in 4 OTC. He also 
testified that while he believes Mr. McIsaac conducted such research, 
he has not seen any of that research. [Tr. 324-5]. When asked how he 
knew that customers would need ephedrine to be treated for asthma and 
would be inclined to purchase that product over the internet, he 
responded ``Well, considering the statistics on how many people buy off 
the Internet, it seems that more people are interested, especially if 
people are looking for these type [sic] of products, to order them off 
the Internet. It's a very convenient method.'' [Tr. 326-7]. He later 
testified that because 4 OTC has not done market projections, they 
don't know the quota that they would seek from the DEA. [Tr. 366-7].
    116. Mr. Pierce testified that there is a need for an ephedrine 
bronchodilator in the United States. [Tr. 282]. He stated that need is 
the helping of people with asthma. [Tr. 282].
    117. Mr. Pierce also testified that certain persons may want to buy 
this product through the internet, as opposed to going to a pharmacy or 
convenience store, because it is more convenient to do so. [Tr. 282].
    118. Mr. Schiefelbein testified that he was a party to the decision 
to initially move forward with the 4 OTC venture. [Tr. 384]. He 
testified that the decision was made because ``there may be a gap and a 
need in terms of . . . the asthma-related conditions.'' [Tr. 384-85]. 
When asked why an individual would chose to treat their asthma with the 
4 OTC product versus a prescription medication, Mr. Schiefelbein 
testified that the 4 OTC product would serve various markets where 
individuals may not be able to afford medication for an asthma 
condition. [Tr. 380]. However, Mr. Schiefelbein did not calculate that 
there was an under-supply of ephedrine in the U.S. market. [Tr. 386].
    119. When Mr. Pierce was asked whether the intended market for the 
4OTC product was ``anyone who wishes to buy ephedrine products on the 
Internet'' he responded ``well . . . I guess it is to people who will 
use for a bronchial dilator, but yes.'' He then stated that 4 OTC has 
no mechanism by which to know whether, in fact, the product will be 
used for that purpose. [Tr. 365]. He stated that he would just market 
it to people who need it directly as a bronchodilator for bronchial 
asthma. [Tr. 302].
    120. Mr. Pierce also stated that he doesn't anticipate any of the 
customers who purchase his dietary supplements would also purchase the 
4 OTC ``unless they have a condition that requires the product.'' [Tr. 
327].\12\
---------------------------------------------------------------------------

    \12\ Given Mr. Pierce's prior testimony about the lack of 
research he reviewed or conducted regarding the use of ephedrine as 
a bronchodilator in the United States, I find most, if not all, of 
his testimony as to why the Respondent's product would be purchased 
and used unfounded and incredible.
---------------------------------------------------------------------------

    121. When asked whether it would be better to market a single 
entity ephedrine product, Mr. Pierce testified that the combination was 
that which he ``inherited with the company . . . [He] didn't want to 
change the direction of what [they were] doing.'' [Tr. 328].
    122. When asked about other bronchodilators, Mr. Pierce was 
unaware. For example, he was unaware of the products Primatene and 
Bronkaid. [Tr. 334]. In addition, Mr. Pierce was unaware that ephedrine 
products are sold to convenience stores in the United States. [Tr. 
334].
1. Website
    123. Mr. Pierce testified that 4 OTC does not currently have a Web 
site. [Tr. 289]. However, he also testified that 4 OTC does not plan to 
market its product on the 4 Ever Fit Web site. [Tr. 293]. His testimony 
indicates that the company has not yet finalized how they will 
advertise the product. [See Tr. 329 (stating that the product could be 
located by Google search or elsewhere depending on ``where we could 
advertise the product. We'd have to confirm that'')]. Mr. Pierce did 
testify that at some point, 4 OTC will have a Web site separate from 
the 4 Ever Fit Web site. [Tr. 364]. 4 OTC will also not advertise 4 EF 
USA's products on its Web site. [Tr. 379].
    124. Mr. Pierce testified that the product will be marketed as a 
hard tablet, and not a gel cap. [Tr. 301].

[[Page 35043]]

2. Packaging, Labeling, and Sale of the 4 OTC product
    125. Mr. Pierce correctly identified and testified that he is aware 
of the retail daily and monthly sales limits for ephedrine in the 
United States. [Tr. 291].\13\ He stated that 4 OTC plans to sell 
twenty-four (24) tablets in one carton. [Tr. 292]. Therefore, to exceed 
the daily limit, a person would have to purchase twelve boxes. He 
testified that that is a large order and that he doesn't anticipate 
someone ordering that amount. [Tr. 292].
---------------------------------------------------------------------------

    \13\ However, the initial 4 OTC SOPs incorrectly recounted the 
sales limitations. [Tr. 35-36]. The current SOPs correctly note the 
sales limits to retail (i.e. mail order) customers. [Resp. Exh. 10 
at 16].
---------------------------------------------------------------------------

    He testified that the product would be sold as a hard tablet in 
blister packs in a box. [Tr. 301]. The products packages will be 
labeled as follows:
    a. On the Front Cover:
    i. EPHEDRINE HYDROCHOLORIDE (24 tablets)
    ii. Eases Breathing For Asthma Patients By Reducing Spasms Of 
Bronchial Muscles for the Temporary Relief of Bronchial Asthma.
    iii. Contains: Ephedrine HCl ----mg, Guaifenesin ----mg per tablet
    b. On the Back Cover:
    i. Under Drug Facts
    1. Active Ingredients
    a. Ephedrine HCl----mg[hellip][hellip]..bronchodilator
    b. Guaifensin----mg[hellip][hellip][hellip][hellip].expectorant
    2. Uses
    a. For temporary relief of bronchial asthma
    b. Eases breathing for asthma patients by reducing spasms of 
bronchial muscles
    c. Helps loosen phlem [sic] (mucus) and thin bronchial secretions 
to make coughs more productive.
    3. Warnings
    a. Do not use this product unless a diagnosis of asthma has been 
made by a doctor. Do not use this product if you have heart disease, 
high blood pressure, thyroid disease, diabetes, or difficulty in 
urination due to enlargement of the prostrate gland unless directed by 
a doctor. Do not use this product if you have ever been hospitalized 
for asthma or if you are taking any prescription drugs for asthma 
unless directed by a doctor. Do not continue to use this product, but 
seek medical assistance immediately if symptoms are not relieved within 
1 hour or become worse. Some users of this product may experience 
nervousness, tremor, sleeplessness, nausea, and loss of appetite. If 
these symptoms persist or become worse, consult your doctor. A 
persistent cough may be a sign of a serious condition. If cough 
persists for more than one week, tends to recur, or is accompanied by a 
fever, rash or persistent headache, consult your doctor. DRUG 
INTERACTION PRECAUTION: Do not use if you are now taking a monoamine 
oxidase inhibitor (MAOI) (certain drugs for depression, psychiatric, or 
emotional conditions, or Parkinson's' disease) or for 2 weeks after 
stopping the MAOI drug. If you do not know if your prescription drug 
contains an MAOI, ask a doctor before taking this product.
    c. On the top cover:
    i. Directions
    a. Adults and children 21 years of age and over: oral dosage is 1 
tablet every 4 hours, not to exceed 4 tablets in 24 hours, or as 
directed by a doctor. Do not exceed recommended dose unless directed by 
a doctor.
    Children under 21 years of age: Consult a doctor. [Resp. Exh. 5].

H. Respondent's SOPs

    126. The SOPs that the Respondent introduced at the hearing are 
distinct from those that the Respondent first gave to the DEA. The 
Respondent revised its SOPs after the Order to Show Cause was issued in 
this proceeding. [Tr. 298].
1. SOPs Regarding State Laws
    127. Some states regulate ephedrine more stringently than the 
federal government. [Tr. 63]. For example, some states have scheduled 
ephedrine and, therefore, a firm would need a registration, 
certificate, or a license to sell an ephedrine product in that state. 
[Tr. 63]. In some cases--a state will send a ``cease and desist'' 
letter to a firm selling ephedrine via the mail. [Tr. 69].
    128. In its SOPs, the Respondent via chart addresses various state 
requirements, including the maximum number of grams/packages permitted 
to be sold per transaction, day, week, and month; \14\ whether there 
are limitations on the combinations of ephedrine/guaifenesin that may 
be sold; how long the entity must keep records; the minimum age for the 
purchaser; and whether ID, signature, employee training, and state 
licensure are required. [Respt. Exh. 10 at 27].
---------------------------------------------------------------------------

    \14\ In describing the permissible number of packages that may 
be sold, however, the Respondent does not identify what combination 
ephedrine/guaifenesin product it is referring to, i.e. 12.5/200, 25/
400, or 12.5/400. [See Respt. Exh. 10 at 27].
---------------------------------------------------------------------------

    129. In addition, the SOPs address in bullet format each state's 
requirements. [Resp. Exh. 10 at 20-26]. For example, the SOPs state 
that in Alabama a purchaser must ``sign special electronic or paper 
register maintained for two years. These records must be maintained for 
at least 180 days.'' [Resp. Exh. 10 at 20].
    130. Under the bulleted outline for New Hampshire, the SOPs only 
state ``comply with federal regulations.'' [Resp. Exh. 10 at 23]. When 
Mr. Pierce was questioned about this SOP he agreed that he could be 
pretty certain that New Hampshire would allow 4 OTC to sell ephedrine 
into the state, so long as they were compliant with federal 
regulations. [Tr. 340]. Later in the SOPs, however, on the chart for 
state requirements, there is a ``Y'' under the column marked ``state 
license'' corresponding to the state of New Hampshire. [Resp. Exh. 10 
at 29].
    131. In addition, there are several states where the Respondent is 
not likely to get licensed. [See Govt. Exh. 19C (Arizona); Govt. Exh. 
19D (Arkansas); Govt. Exh. 19M (Iowa); Govt. Exh. 19J (Kansas); and 
Govt. Exh. 19N (Louisiana)]. However, that likelihood is not included 
in the Respondent's SOPs. [Tr. 341-3; Resp. Exh. 10]. Mr. Pierce agreed 
that state law restrictions would preclude 4 OTC from lawfully handling 
ephedrine products in Montana, New Mexico, Michigan, North Carolina, 
and Louisiana. [Tr. 341-46].
    132. With respect to the requirements for the State of Michigan, 
the Respondent's SOPs indicate that state license is required, the 
maximum number of packages that may be sold per transaction is 2, the 
maximum number of grams of the 4 OTC product that can be sold per month 
is 9 and cannot exceed a 25/400 ephedrine/guaifenesin combination, the 
Respondent must keep records for 6 months, the minimum age for purchase 
is 18, and both photo ID and signature are required. [Resp. Exh. 10 at 
28]. However, the Respondent's SOPs overlook the fact that Michigan 
expressly prohibits the internet sale of ephedrine into its territory. 
[Govt. Exh. 19-P at 5].
    133. With regard to additional state regulations, not contained in 
the Respondent's SOPs, Mr. Pierce testified that ``we are relying on 
our attorney's to complete our due diligence on that, once we move to 
the next level.'' [Tr. 347-8].
    134. He also stated that SOPs are always a ``work in progress.'' 
[Tr. 357]. Although some states made ephedrine products Schedule IV or 
V controlled substances, Mr. Pierce was unfamiliar with the concept of 
scheduled substances. [See Govt. Exh. 19S

[[Page 35044]]

(Missouri; Govt. Exh. 19AA (Oklahoma); Govt. Exh. 19Z (Ohio); Tr. 345].
    135. At the hearing, Mr. Pierce appeared unaware of an Arizona 
Board of Pharmacy requirement that the Respondent obtain a state 
license as an ephedrine wholesaler prior to importing ephedrine into 
the state, until the Government's counsel pointed the need for it on 
cross-examination. [Tr. 371].
    136. At the time of the hearing, the Respondent did not have such a 
license. [Tr. 443]. Mr. Mudri, the Respondent's expert later testified 
that there seems to be some confusion as to whether that is in fact 
required. [Tr. 424]. The Respondent later acquired that license. [Resp. 
Exh. 12].
    137. Mr. Mudri testified that he cannot speak for the accuracy of 
the Respondent's SOPs regarding state laws. [Tr. 426].
    138. In light of the various state regulations, Mr. Pierce agreed 
that he is not certain how many states the Respondent will be able to 
obtain licensure in. [Tr. 351-52]. In addition, Mr. Pierce has not 
projected in which states there would be the most potential to sell. 
[Tr. 352].
    139. He also stated that his decision to sell via the internet may 
be affected by state licensure requirements. [Tr. 369].
2. 4 OTC's SOPs Regarding DEAs Regulations
    140. When the Respondent first presented its SOPs to DI Quintero, 
those SOPs stated that the ephedrine retail sales limit was 24 grams 
and the ephedrine limit for record-keeping was 1 kilogram. [Tr. 35-36].
    Currently, the Respondent's SOPs state the following with regard to 
complying with the DEA's regulations:
    a. Warehouse Security
    i. All Schedule listed chemicals will be stored in a caged area 
that is locked and will have limited access to designated employees 
\15\ of the company.
---------------------------------------------------------------------------

    \15\ The term employee is defined in the SOP as ``all persons 
that perform any business related activity at the facility or 
regarding the ephedrine chemical drug product.'' [Respt. Exh. 10 at 
2].
---------------------------------------------------------------------------

    ii. The doors to the cage will be self-locking, self-closing doors.
    iii. Access to the cage will be recorded in an access log.
    iv. In working hours--the caged area is protected by surveillance 
and guard station, and in non-working hours by a central station alarm 
service with a duty to respond and notify local law enforcement to 
respond.
    v. All schedule listed chemical products ``are immediately placed 
within the storage area upon receipt or returned to the storage area 
when not being transported.'' [Resp. Exh. 10 at 2-3].
    b. Employee Hiring:
    i. That the company will only hire employees without a criminal or 
drug related criminal background.
    ii. Backgrounds and drug tests will be conducted initially and then 
randomly afterwards.
    iii. Employees will be trained in all facets of dealing with list I 
chemicals, including self-certification and downstream distribution 
requirements for the company's customers.
    iv. The company has established a reporting procedure similar to 21 
CFR 1301.91 for reporting diversion. [Resp. Exh. 10 at 5-6].
    c. Importation
    i. The company must apply for an importation quota annually via 
Form 250 (included in SOPs).
    ii. The company must either provide information to establish a 
``regular business relationship'' with its Canadian supplier or notify 
the DEA 15 days prior to any importation via form 486 (included in 
SOPs). [Resp. Exh. 10 at 8].
    d. Marketing Sales and Shipping
    i. The company must identify the party who is receiving the 
product, such as a driver's license, and verify the existence and 
validity of the customer.
    ii. In addition, the company will obtain a second form of 
identification from the customer that corroborates the driver's 
license.
    iii. The company will adhere to state by state restrictions 
regarding the sale of the ephedrine chemical drug product.
    iv. The company will ship by U.S. Mail or other common carrier.
    v. ``While temporarily stored in preparation for shipment outside 
of the caged area within Freeport Logistics, the product will be under 
constant observation by employees of the company and shipping 
containers will be unmarked, not indicated [sic] they contain [schedule 
listed chemicals] to guard against in-transit losses.''
    vi. The company shall comply with FDA and FTC regulations regarding 
the advertising of over the counter drugs. The advertising will be 
truthful and non-misleading. [Resp. Exh. 10 at 15-18].
    e. Recordkeeping
    i. To keep reports, inventories and sales of schedule listed 
chemical products consistent with Part 1310 of the Code of Federal 
Regulations. [Resp. Exh. 10 at 31].
    141. When Mr. Pierce was questioned about how he intended to comply 
with the DEA's 486 Form requirement that the Respondent inform DEA who 
the product is going to be sold to before importation, the Respondent 
answered ``One of the ways, we could presell the product and take 
orders, showing that we have orders from customers, and then bring the 
product in.'' [Tr. 359]. He also testified that they could do ``auto 
ship, if people wished to sign up for a monthly shipment.'' [Tr. 360].
    142. Throughout the hearing, Mr. Pierce and Mr. Schiefelbein stated 
their intent to comply with all state and federal regulations that 
govern the Respondent's practice. [Tr. 293, 358, 359, 372, 380, 395-
96].
    143. Mr. Mudri testified the Respondent's SOPs adequately address 
the DEA's recordkeeping requirements. [Tr. 430-1].
    144. Mr. Mudri testified that he believes that 4 OTC's management 
has an understanding of DEA regulations and that the company's SOPs 
``are a good start with regards to operations.'' He clarified, ``I 
think that maybe down the road there may have to be some things 
added.'' [Tr. 413].
    145. Mr. Mudri was unfamiliar with the DEA's requirement that any 
person who desires to sell ephedrine via the internet must self-
certify. [Tr. 435-6].\16\
---------------------------------------------------------------------------

    \16\ To keep apprised of DEA regulations, which Mr. Mudri admits 
is a ``difficult task,'' he does his best to read the laws that have 
changed, including the Combat Meth Act, monitors show cause hearing, 
and keeps up with what's going on within DEA and the community. [Tr. 
402]. Mr. Mudri admitted that there have been several changes to the 
list I chemical laws since he served as Chief of the Domestic 
Chemical Operations and since he left DEA in 2001. [Tr. 407]. He has 
served as a consultant for businesses that handle listed chemicals, 
although his practice consulting importers has been somewhat 
limited. [Tr. 403].
---------------------------------------------------------------------------

I. Letter from Respondent to DEA Regarding its DEA Application.

    146. On February 19, 2009, the Respondent, through counsel, sent a 
letter to DEA Diversion Group Supervisor Helen Kaupang. Therein, the 
Respondent identified as the Government's primary concerns the internet 
sale of ephedrine and the lack of proper identification of its 
customers. [Govt. Exh. 11 at 1].
    147. The Respondent explained that it had developed SOPs to ensure 
full compliance with federal and state laws, and that all of the 
employees and management of both the Respondent and the Respondent's 
affiliate, 4 Ever Fit, are familiar with the SOPs. [ Govt. Exh. 11 at 
2].
    148. The Respondent stated ``[o]ther companies are selling and 
distributing ephedrine products on the Internet. These companies such 
as Mega-Pro and their Vasapro product-obtained

[[Page 35045]]

controlled substance licenses which included Internet sales and have 
had these licenses renewed.'' [Govt. Exh. 11 at 2].
    149. The Respondent then stated that ``[b]ecause these other 
internet companies exist, the DEA must be satisfied that there are ways 
to properly identify customers and comply with Federal and State 
controlled substance laws.'' [Govt. Exh. 11 at 2].
    150. With regard to the Respondent's prior experience in handling 
controlled substances, the letter states ``4OTC has operated a business 
in Canada under the name of 4 EverFit since 2001. 4 OTC's management 
owned McIsaac Distribution, Ltd., who was the distributor of their 
products both in Canada and internationally until 4OTC formed a 
partnership with GFR Pharma Ltd.'' [Govt. Exh. 11 at 2].
    151. Respondent stated that ``4OTC formed a partnership with GFR 
Pharma Ltd. in 2008 . . . [and] GFR will be the exclusive manufacturer 
of products distributed by 4OTC in the United States.'' [Govt. Exh. 11 
at 2]. The Respondent further explained that ``[k]ey personnel involved 
in handling precursor substances for GFR Pharma include Richard Pierce 
the CEO of GFR . . . [and] Maribel Aloria [who] is Vice President, 
Quality Control/Research & Development for GFR.'' [Govt. Exh. 11 at 2].
    152. With regard to the list of potential customers, the Respondent 
provided that ``4OTC does not currently have any customer list. 4 OTC 
will be happy to provide a customer list after approval of their 
applications as such information becomes available.'' [Govt. Exh. 11 at 
3].

IV. Statement of Law and Discussion

A. Position of the Parties

1. Government's Position
    The Government asserts that the Respondent's application should be 
denied on the following basis: (1) that there has been a drop in the 
ephedrine market; (2) 4 OTC's Canadian affiliate and potential 
competitors sell ephedrine for non-legitimate purposes; (3) 4 OTC has 
not established any basis to show a legitimate ephedrine market in the 
United States; (4) 4 OTC's Canadian companies lack relevant experience; 
(5) 4 Ever Fit ephedrine is sold to convenience stores in the United 
States; (6) the Respondent has failed to consider the state laws 
pertaining to ephedrine; (7) 4 OTC's Canadian companies have violated 
Canadian regulatory provisions; (8) 4 OTC's decision to change its logo 
after the OTSC indicates that if the Respondent's registration had been 
granted it would have been marketed in a name that implied ephedrine's 
illicit use; and (9) Respondent's failure to notify DEA of its proposed 
address and failure to obtain a lease and proper security for a new 
lease indicates the Respondent's application is fraught with problems. 
[Government' Proposed Findings of Fact and Conclusions of Law ``(Govt. 
Brief) at ii; 44].
    Specifically, the Government argues that ephedrine sales have 
substantially declined in both the overall over-the-counter market and 
particularly for mail orders. The Government thus questions why the 
Respondent would enter a market that is clearly declining. [Govt. Brief 
at 37]. Likewise, the Government avers that the market for 25/400 mg 
ephedrine product that 4 OTC seeks to market is declining, the 
pseudoephedrine market is significantly higher than the ephedrine 
market, and that the 12.5/400mg ephedrine product that 4 OTC seeks to 
market does not even exist in the U.S. market. [Govt. Brief at 37-38].
    The Government argues that 4 OTC's competitors, Vasapro and Kaizen, 
sell ephedrine for other than a legitimate medical purpose. The 
Government alleges that the Respondent does not dispute it intends to 
compete with Vasapro and that Vasapro clearly markets its product ``to 
increase strength and muscle.'' [Govt. Brief at 38].
    The Government then asserts that Kaizen was one of the 4 Ever Fit's 
competitors in Canada, and that company advertised ephedrine as a 
``supplement source.'' [Id.].
    The Government thus argues that there is a market for illegitimate 
uses of ephedrine, i.e. as a dietary supplement. [Id. at 39]. The 
Government further asserts that those facts in addition to the fact 
that the Respondent was unaware of two other brands of ephedrine, 
Primatene and Bronkaid, indicate the Respondent's product is not 
destined for any legitimate market. [Id. at 40].
    Next, the Government asserts that the Respondent only speculates as 
to who would purchase the product, and hence has no idea what its quota 
would be. Indeed, the company never calculated whether there was an 
undersupply of ephedrine in the United States. [Id. at 39-40].
    The Government then argues that GFR Pharma has never produced an 
OTC product for medical use and thus lacks the requisite experience to 
be 4 OTC's supplier. [Id. at 40-41]. The Government states that it is 
very apparent that the Canadian company's customer base is not composed 
of those who purchase ephedrine for asthma treatment. [Id. at 41].
    Next, the Government argues that GFR does not have control over its 
customers, specifically 4 EverFit, and that it should have taken steps, 
including refusal to sell ephedrine to Better Bodies Nutrition as a 
result of that company's attempted illegal shipment into the United 
States. [Id. at 41-42]. The Government asserts that the Respondent 
``gives DEA no assurance that 4 OTC would be responsible for its 
customers.'' [Id. at 42].
    In addition, the Government argues that the Respondent is 
unfamiliar with the state laws that would govern its practice. 
Specifically, it asserts the Respondent's SOPs fail to note that the 
Respondent would be unable to obtain licenses in states where ephedrine 
is a controlled substance or required to be sold only by a pharmacy, 
and that Washington has a number of restrictions for retail stores that 
sell ephedrine that may preclude the Respondent from acquiring an 
ephedrine license. [Id. at 42-43]. The Government concludes that the 
Respondent's lack of awareness of state requirements renders it unable 
to even ``guestimate'' as to its actual customer base. [Id. at 43].
    Next, the DEA argues that both McIsaac Distribution and GFR 
violated various Canadian laws, including McIsaac's selling of 
ephedrine to customers whose addresses could not be confirmed, and 
failure to report suspicious sales. The DEA argues that despite Health 
Canada never taking any civil or criminal action against GFR, 4 OTC's 
supplier, these past actions should be considered as negative 
experience in distributing List I chemicals. [Id.].
    The Government also finds it significant that the Respondent 
amended its SOPs to correct errors regarding DEA's requirements, 
specifically an outdated sales limit of 24 grams and a confusion of 
recordkeeping versus sales limits. [Id. at 44].
    The Government then argues that the Respondent's decision to 
changes its ephedrine package label to remove the ``4 Ever Fit'' logo 
after the Order to Show Cause was issued indicates that if the 
Respondent's registration had been granted then the Respondent would 
have been marketing ephedrine under a brand name ``that implied 
ephedrine's illicit use and had no relation to legitimate use.'' [Id.].
    The Government further argues that the Respondent's changing of its 
registered address and failure to obtain a lease and security for a new 
lease reflects that its ``application process

[[Page 35046]]

continues to be fraught with problems and unresolved issues.'' [Id.].
    The Government concludes by stating the Respondent has not provided 
any evidence justifying its reason for entering the ephedrine market in 
the U.S., which the Government argues is declining. It argues all 
evidence indicates that the Respondent's ephedrine is destined for 
customers who use it for weight loss and energy and other ``illicit 
purposes.'' [Id. at 45].
    The Government argues that the Respondent's experience is much too 
involved with marketing ephedrine for illicit uses and consequently its 
lack of experience in the U.S. market, exacerbated by this negative 
experience in Canada, forms a basis for denying its application. [Id. 
at 46]. ``4 OTC is not prepared to market ephedrine legally and has not 
established that its customers would purchase ephedrine for legitimate 
medical reasons.'' [Id. at 47].
2. Respondent's Position
    The Respondent argues that granting its importation application is 
``well within the public's interest.'' [4 OTC's Proposed Findings Of 
Fact, Conclusions Of Law, And Argument (``Resp. Brief'') at 2].
    First, the Respondent argues that ``there exists a strong market'' 
for its ephedrine product, ``allowing asthma sufferers an option to 
obtain relief without having to obtain a prescription.'' [Id. at 2]. 
The Respondent cites to the FDA monograph that permits the use of 
ephedrine for bronchial and asthma related conditions. [Id. at 1 
(citing Cold, Cough, Allergy, Bronchodilator Products, and 
Antiasthmatic Drug Products for Over-The-Counter Human Use; Final 
Monograph for OTC Bronchodilator Products, 51 FR 35,326 (1986) 
(codified at 21 CFR Part 341)].
    The Respondent then argues that it has effective controls against 
diversion so as to render its registration in the public's interest. 
[Resp. Brief at 7-8]. Specifically, it states that its facility has 
adequate security, as DI Gary Linder, ``said it was okay.'' [Id. at 8 
(citing Tr. 207)]. In addition, Mr. Mudri, the Respondent's consultant, 
agreed that those security measures were more than adequate. [Id. at 
8]. The Respondent then states that it has adequate systems for 
monitoring the receipt, distribution, and disposition, of List I 
chemicals in its operations'' as outlined in its SOPs, which also 
evidence the ``sophistication and effectiveness of 4 OTC's security and 
anti diversion systems.'' [Id.].
    In this same discussion, the Respondent addresses Canada's 
citations of McIsaac Distribution, and states that ``its principals and 
its employees have not been involved in excessive or suspicious sales 
of ephedrine products.'' [Id.]. To support this argument, the 
Respondent argues that these transactions were legal transactions and 
made before Mr. Pierce acquired assets of McIsaac. [Id. at 8-9]. The 
Respondent also argues that GFR had no knowledge of the shipment by 
Better Bodies of 4 Ever Fit into the United States and has not been 
cited by Health Canada, that the DEA is concerned about mere 
observations \17\ by that agency. [Id. at 9-10].
---------------------------------------------------------------------------

    \17\ The Respondent argues that an observation report ``simply 
recommends improvements and is not considered a citation.'' [Id. at 
10].
---------------------------------------------------------------------------

    Next, the Respondent argues that it is in compliance with federal 
and state laws and has demonstrated that it will continue to comply 
with those laws. [Id. at 10]. Specifically, it states that it has yet 
to import ephedrine, or market its proposed ephedrine products, and 
regularly consults with regulatory counsel and an expert in DEA 
regulations. [Id.].
    The Respondent asserts that it has developed a formula and label 
that is fully compliant with the FDA's requirements for over-the-
counter products. In addition, the Respondent emphasizes that ``the 4 
OTC ephedrine product would not be used for weight loss or body 
building.'' [Id. at 12 (emphasis in original)''].
    As for compliance with state laws, the Respondent states that it 
has obtained an Arizona Non-Prescription Drug Permit and its SOPS 
``contain a comprehensive summary of state variations, evidencing [its] 
intent to comply with all state and local laws.'' [Id. at 13]. It 
further states that ``it will work with its attorneys and expert 
consultant to update its SOPs to include any changes to state 
regulations that may have occurred in the interim.'' [Id. at 13].
    Next, the Respondent notes that none of its officers or employees 
have any prior convictions relating to ephedrine or any other 
controlled substance or chemical and that this factor weights in favor 
of the Respondent's registration. [Id. at 14]. The Respondent also 
points out its stringent hiring policy which will screen future 
employees to determine whether any such convictions exist. [Id.].
    The Respondent emphasizes Mr. Pierce's experience in handling 
ephedrine as weighing in favor of its registration. The Respondent 
states that Mr. Pierce has ``extensive experience in dealing with 
ephedrine having manufactured ephedrine since 2004 . . . as well as 
retail experience sufficient to warrant registration in the United 
States.'' [Id. (emphasis in original)]. The Respondent also emphasizes 
GFR's separate Quality Control department and the fact that it has no 
significant violations of Canadian law pertaining to the manufacture 
and sale of ephedrine. [Id. at 14-15].
    Last, the Respondent argues that there is a legitimate need for its 
product in the United States, as the FDA recognizes its use as an OTC 
bronchodilator. [Id. at 15-16]. Further, the Respondent argues that the 
amount of due diligence it has put forth thus far justify its 
registration. [Id. at 16].
    The Respondent then addresses the DEA's diversion concerns, and 
states ``the Government did not proffer any specific statistics, data 
or evidence, nor did it present an expert witness, to show that the 
type of ephedrine combination product that 4 OTC intends to use can 
readily be used in the production of methamphetamine . . . or that this 
specific combination-ingredient product actually does show up in 
clandestine labs.'' [Id. at 16]. In addition, the Respondent argues 
that the Government failed to demonstrate that products marketed for 
off label uses, i.e. for mental alertness and weight loss, are diverted 
for methamphetamine production. The Respondent adds that off-label 
marketing is within the jurisdiction of the FDA and not the DEA. [Id. 
at 17]. ``The Government did not show that ephedrine products marketed 
for weight loss appear in `illicit traffic in the United States.' '' 
[Id.].
    Next, the Respondent addresses its failure to produce a customer 
list at the time of application. It states that such is not required by 
law but instead is only required to be produced 15 days prior to 
importation. The Respondent then argues that if the DEA desired to 
impose a requirement on applicants that they provide a customer list at 
the time of application, it would have to use notice and comment 
rulemaking to do so. [Id. at 18-20]. In addition, the Respondent argues 
that the reason it did not provide such a list is because it was non-
operational at the time of application, and viewed soliciting sales of 
a DEA regulated product without proper registration as possibly 
illegal. [Id. at 20]. The Respondent assures, however, that it will 
provide a list of customers on its DEA 486 form as well as in the 
monthly sales reports that it provides to DEA. [Id. at 21].
    The Respondent thus concludes that based on its arguments and the 
findings

[[Page 35047]]

of its expert, that its registration would be consistent with the 
public interest. [Id. at 22-23].
B. Statement of Law and Analysis
1. Rulemaking
    In 2006, via the Combat Methamphetamine Epidemic Act (``CMEA''), 
Congress amended 21 United States Code section 952(a)(1) to read, ``it 
shall be unlawful to import into the United States . . . ephedrine, 
pseudoephedrine, and phenylpropanolamine . . . except such amounts . . 
. as the Attorney General finds necessary to provide for medical, 
scientific, or other legitimate purposes.'' [21 U.S.C. 952(a)(1) 
(2006)].
    Subsequently, the DEA promulgated regulations pursuant to the new 
statutory amendments. In a 2010 preamble to its final rule, the agency 
stated that via 952(a)(1), ``Congress essentially imposed the same 
requirements for importation of ephedrine, pseudoephedrine, and 
phenylpropanolamine as are imposed on narcotic raw materials--crude 
opium, poppy straw, concentrate of poppy straw and coca leaves.'' [75 
FR 4,973 (DEA 2011)].
    Accordingly, pursuant to DEA precedent as to the registration of 
importers of crude opium and poppy straw under 952(a)(1), there is a 
rulemaking aspect to this proceeding that shall be addressed. 
Specifically, to permit the Respondent's importation, the DEA must 
issue a rule finding that the Respondent's product is necessary to 
provide for medical, scientific, or other legitimate purposes in the 
United States. [See 5 U.S.C. Sec.  556(d); Johnson Matthey, Inc., 67 FR 
39,401, 39,401 (DEA 2002)]. Because the Respondent is the proponent of 
such rule, it bears the burden of proof. [Johnson Matthey, 67 FR at 
39,402; see also Penick Corporation, 68 FR 6947, 6948 (DEA 2003)].
a. Medical, Scientific, or Other Legitimate Purpose
    The Controlled Substances Act (``CSA'') does not define ``medical, 
scientific, or other legitimate purposes'' as that phrase is used in 
952(a)(1). Instead, the statute gives authority to the Attorney General 
to find whether an import is necessary for those purposes. [21 U.S.C. 
958(a)(1)]. The Attorney General delegated that authority to the 
Administrator of the DEA, who delegated the authority to the Deputy 
Administrator of the DEA.\18\ Therefore, on its face, the statute 
grants significant deference to the DEA in determining not only what 
those purposes are, but also, whether an import would satisfy those 
purposes. [Zuber v. Allen, 90 S. Ct. 314 (1969) (finding that 
``defining of a particular statutory term is a function that should, in 
the first instance, be left to the appropriate administrative body'')].
---------------------------------------------------------------------------

    \18\ 28 CFR 0.100 and 0.104.
---------------------------------------------------------------------------

    While the DEA has not formally defined how 952(a)(1) shall be 
interpreted in the context of the importation of ephedrine, in its 
final rule issued in 2010 removing the recordkeeping thresholds for the 
List I chemicals pseudoephedrine and phenylpropanolamine, the agency 
described some of ephedrine's licit purposes. It stated, ``ephedrine, 
pseudoephedrine, and phenylpropanolamine all have therapeutic uses in 
both over-the-counter and prescription drug products. Ephedrine is 
lawfully marketed under the Federal Food, Drug, and Cosmetic Act as an 
ingredient in nonprescription (``over-the-counter'' (OTC)) drugs as a 
bronchodilator for the treatment of asthma. Ephedrine is also available 
as a nonprescription product in combination with the active ingredient 
guaifenesin, which is an expectorant.'' [75 FR 38,915]. The DEA also 
described some of the illicit purposes for ephedrine. None of those 
purposes, however, included the use of an ephedrine product as a 
dietary supplement. The purpose for which 4 OTC, Inc. intends to import 
ephedrine into the United States was a highly contested issue in this 
proceeding. The Respondent maintains that it intends to import finished 
form ephedrine, specifically a guaifenesin/ephedrine combination 
product, into the United States for use as a bronchodilator. As 
indicated by recent DEA publications, this purpose is a legitimate one. 
[See 75 FR 38,915 (DEA 2010)]. However, the Government argues that the 
Respondent instead intends to serve the dietary supplement market with 
its combination product, despite its assurances that its product will 
be lawfully marketed in accordance with FDA law.
    Nevertheless, it is the Respondent that bears the burden of proving 
the purpose for its proposed import. Here, the Respondent has failed to 
meet this burden. Although the Respondent's representatives made 
assurances throughout the hearing that it intends to import ephedrine 
for use as a bronchodilator, the evidence in this record is 
inconsistent with that intent.
    Specifically, the Respondent was generally unfamiliar with the 
bronchodilator ephedrine market. Indeed, Mr. Pierce testified that he 
conducted no market research on the use of an ephedrine/gauifenisen as 
a bronchodilator in the United States. [FOF 116].\19\ Yet, he 
speculated that ``there is a need for an ephedrine bronchodilator in 
the United States . . . and that need is helping people with asthma.'' 
[FOF 92; see also 117]. As a result of Mr. Pierce's failure to research 
the basis for that conclusion, I found that most if not all of his 
testimony regarding why the Respondent's product would be purchased and 
used speculative. [FOF 121, n. 13].
---------------------------------------------------------------------------

    \19\ Although later in this decision I find Mr. Pierce's 
testimony regarding his failure to conduct market research 
incredible, to clarify, I do find credible his testimony that he 
failed to conduct such research on the bronchodilator market.
---------------------------------------------------------------------------

    Further, while Mr. Schiefelbein testified that the decision was 
made for the Respondent to sell its product because ``there may be a 
gap and a need in terms of . . . the asthma-related conditions,'' he 
otherwise offered no evidence as to the basis for his inference that 
such a gap may exist. [FOF 119]. In addition, despite Mr. Pierce's 
assertion that the bronchodilator marketplace was where the Respondent 
intended to enter, he could only name one competitor. [FOF 123]. Thus 
he demonstrated his lack of knowledge concerning the bronchodilator 
market. [Id.].
    In total, such speculative conduct is not tantamount to substantial 
evidence that the Respondent is one who seeks to sell its product as a 
bronchodilator in the United States. [See Alvin Darby, M.D., 75 FR 
26,993, 26,999 (DEA 2010) (citing NLRB v. Columbian Enameling & 
Stamping Co., 306 U.S. 292, 300 (1939) (``under the substantial 
evidence test, the evidence must do more than create a suspicion of the 
existence of the fact to be established.'')]. Accordingly, I find the 
Respondent has failed to establish that its product would be imported 
to provide for medical, scientific, or other legitimate purpose. 
Therefore the Respondent failed to carry its burden of proof under 
952(a)(1).
b. Necessity
    The Respondent has similarly failed to satisfy the second prong of 
the CSA's standard: that its product is necessary to meet the stated 
purpose. While the DEA has clarified that the term ``necessary'' is not 
meant to limit competition in a valid marketplace, the proponent must 
still establish such need exists. [See Johnson Matthey, 67 FR at 
39,043]. Again, the Respondent has failed to meet that burden. Even 
assuming the Respondent had demonstrated that the intended purpose for 
its product was medical, use as a bronchodilator, it introduced no 
evidence as to the need

[[Page 35048]]

for any ephedrine/guaifenesin combination product in the United States 
for such use.\20\ Indeed, it only speculated that persons would 
purchase its product for that purpose. [FOF 116, 117, 119, 120, 121, 
123]. Similarly, despite the Respondent's recognition that a 12.5 mg 
ephedrine/400 mg guaifenisen OTC product is not currently available in 
the United States, it speculated that that product was necessary as an 
``extra strength'' formula. [FOF 104, 105]. Such speculation, however, 
is not substantial evidence of need. [See Darby, 75 FR at 26,999].
---------------------------------------------------------------------------

    \20\ Although, I recognize the Respondent's emphasis that the 
FDA approves marketing products similar to the Respondents' as 
bronchodilators in the United States, such is not evidence of actual 
need for that type of product.
---------------------------------------------------------------------------

    Accordingly, this case is starkly different from earlier DEA 
rulemakings under 952(a)(1). In Johnson Matthey, 67 FR at 39,041, the 
Respondent introduced extensive expert testimony as to the need for 
narcotic raw materials (``NRMs'') in the United States. The expert 
concluded that NRMs are ``necessary to the United States medical 
community, as there are medical demands that cannot be met by non-
opiate narcotics'' He clarified, ``opiate pharmaceuticals have a long 
history of medical use and the medical community continues to rely upon 
opium-derived alkaloids rather than synthetic opiate analgesics. These 
alkaloids and their semi-synthetic derivatives such as hydromorphone, 
hydrocodone, and oxycdone are critical therapeutic agents today.'' He 
concluded, ``that morphine, codeine, hydromorphone, hydrocodone and 
oxycodone are necessary to the United States medical community.'' [Id. 
at 39,042-3].
    Here, the Respondent failed to present such evidence of need for 
its product. Therefore, based on this record, the DEA cannot similarly 
conclude that Respondent's import is necessary in the United 
States.\21\
---------------------------------------------------------------------------

    \21\ However, in the event that the Deputy Administrator wishes 
to take official notice of DEA publications regarding the 
importation of ephedrine then those publications may demonstrate 
some need for ephedrine in the United States for the purpose for 
which the Respondent proposes its import. [See 75 FR 4973, 4973-4 
(DEA 2010) (stating ``ephedrine, pseudoephedrine, and 
phenylpropanolamine are used to produce drug products lawfully 
marketed under the Federal Food, Drug and Cosmetic Act (FFD&CA), 
many of which are prescription drugs . . . . These chemicals are 
also used in over-the-counter (OTC) drug products (lawfully marketed 
and distributed under the FFD&CA as a non-prescription drug''); 75 
FR 79,407 (DEA 2010) (setting forth the established assessment of 
annual needs for 2011 for ephedrine in the United States)].
---------------------------------------------------------------------------

    Accordingly, as the Respondent has failed to prove by a 
preponderance of the evidence that its importation of an ephedrine/
guaifenesin product is necessary for medical, scientific, or other 
legitimate purposes in the United States, it is my recommendation that 
the DEA not initiate rulemaking proceedings to permit such importation 
based on this record.
2. Adjudication
    Consistent with 21 U.S.C. 958(c)(2)(A) ``The Attorney General shall 
register an applicant to import . . . a list I chemical unless the 
Attorney General determines that registration of the applicant is 
inconsistent with the public interest.'' [21 U.S.C. 958(c)(2)(A)]. 
Likewise, the public interest shall be determined consistent with the 
provisions in section 823(h). [21 U.S.C. 958(c)(2)(B)]. In making this 
determination, Congress directed that the Administrator consider the 
following:
    (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.
    [21 U.S.C. 823(h)].

    ``These factors are considered in the disjunctive.'' [Joy's Ideas, 
70 FR 33,195, 33,197 (DEA 2005)]. The Administrator may rely on any one 
or a combination of factors, and may give each factor the weight she 
deems appropriate in determining whether an application for 
registration should be denied. [See e.g., David M. Starr, 71 FR 39,367 
(DEA 2006); Energy Outlet, 64 FR 14269 (DEA 1999); Morall v. DEA, 412 
F.3d. 165, 173-4 (DC Cir. 2005)]. The Administrator bears the burden of 
proof with regard to this adjudication. [21 C.FR. 1301.44].
a. 4 OTC's maintenance of effective controls against diversion into 
other than legitimate channels.
    In line with DEA precedent, ``this factor encompasses a variety of 
considerations including, inter alia, the adequacy of physical 
security, the adequacy of recordkeeping, and whether a registrant is 
selling excessive quantities of the products.'' [CBS Wholesale 
Distributors, 74 FR 36,746, 36,749 (DEA 2009)]. In addition, under this 
factor, the DEA will consider whether the Respondent is serving an 
illegitimate market based on whether the sale of ephedrine products is 
inconsistent with the known legitimate market and known end-user demand 
for products of this type. [See e.g. Hilmes Distributing, Inc., 75 FR 
49,951 (DEA 2010); Gregg & Sons Distributors, 74 FR 17,517 (DEA 2009)].
(1) Illegitimate Market
    The illegitimate market that the Government purports to exist in 
this case, is distinct from that contemplated in other list I chemical 
cases. In prior cases, the DEA has expressed its concern about the sale 
of ephedrine into the ``grey market,'' i.e. to convenience stores and 
gas stations, as individuals seeking to convert ephedrine into 
methamphetamine typically seek out these retailers versus their larger 
national chain competitors. [Joys Ideas, 70 FR 33,195, 33,196 (DEA 
2005) (describing the grey versus traditional market); Gregg & Sons, 74 
FR at 17,523 (clarifying that such distribution is a factor and not a 
per se rule precluding a respondent's registration)]. The agency's 
concerns about grey market distribution are best summarized as follows: 
``the illegal manufacture and abuse of methamphetamine pose a grave 
threat to this Nation. . . . Methamphetamine abuse has destroyed 
numerous lives and families, and has had a devastating impact on many 
communities. Moreover, because of the toxic nature of the chemicals 
used in making the drug, illicit methamphetamine laboratories create 
serious environmental harms.'' [CBS Wholesale, 74 FR at 36,747].
    Here, the Government argues that the illegitimate market that the 
Respondent would serve is the market for ephedrine as a dietary 
supplement. [See Govt. Brief at 40 (stating that the Respondent's 
product is not ``destined for a legitimate market'')] [Id. at 44 
(stating the Respondents marketing ``implied ephedrine's illicit 
use'')]. The FDA banned the sale of an ephedrine product as a dietary 
supplement in 2004, finding that such a product is ``adulterated.'' The 
FDA prohibits the adulteration of a drug as well as the introduction, 
delivery, or the receipt of an adulterated product in interstate 
commerce. 21 U.S.C. 331 (a)-(c). [See 69 FR 6,788 (FDA 2003); 21 C.F.R 
119.1 (2010)]. The FDA further prohibits the marketing of a 
bronchodilator as a dietary supplement as such constitutes misbranding. 
[21 U.S.C. 331(b)]. Consequently, the dietary supplement

[[Page 35049]]

market for an ephedrine product remains an illegitimate market.\22\
---------------------------------------------------------------------------

    \22\ It is important to note, however, that contrary to the 
Government's assertion, it is the sale, and not the use, of an 
ephedrine product as a dietary supplement that makes this market an 
illegitimate one. [See Govt. Brief at 39].
---------------------------------------------------------------------------

    The Government has provided no evidence of the actual legitimate 
market for ephedrine as a bronchodilator, other than general 
information as to market trends. [See FOF 9-12]. These generally 
downward market trends for ephedrine as an asthma medication, however, 
lend credence to the possibility that the Respondents in fact intend to 
sell its product as a dietary supplement. Yet, as it is impossible to 
ascertain whether the Respondent's importation would exceed legitimate 
demand, I cannot find on this record that the Respondent's product is 
thus likely to be diverted for such sale or for another illicit 
purpose, such as the conversion of it into methamphetamine. I am 
similarly unmoved to find the evidence in this record of market trend 
analysis weighs in favor of denying the application. [See Greg & Sons, 
74 FR at 17,520; CBS Wholesale, 74 FR at 36,748].
(2) Security Measures
    Whether the Respondent has adopted adequate controls against the 
diversion of its product for illicit use, i.e. its conversion into 
methamphetamine, in accordance with DEA regulation is also relevant to 
the ultimate issue of whether its registration is in the public's 
interest.
    In 1995, DEA promulgated 21 C.F.R 1309.71(a), which directed that 
``[a]ll applicants and registrants shall provide effective controls and 
procedures to guard against theft and diversion of list I chemicals.'' 
This regulation, which remains in effect, further explained that ``[i]n 
evaluating the effectiveness of security controls and procedures, the 
Administrator shall consider:
    (1) the type, form, and quantity of list I chemical handled;
    (2) the location of the premises and the relationship such location 
bears on the security needs;
    (3) the type of building construction comprising the facility and 
the general characteristics of the building or buildings;
    (4) the availability of electronic detection and alarm systems;
    (5) the extent of unsupervised public access to the facility;
    (6) the adequacy of supervision over employees having access to 
List I chemicals;
    (7) the procedures for handling business guests, visitors, 
maintenance personnel, and nonemployee service personnel in areas where 
List I chemicals are processed or stored; and
    (8) the adequacy of the registrant's or applicant's systems for 
monitoring the receipt, distribution, and disposition of List I 
chemicals in its operations.''

    [Id.].

    The Government does not address the Respondent's security measures 
at its new location. The Government only refers to the Respondent's 
initial location and its failure to have proper security for the 
assertion that the Respondent's application has been ``fraught with 
problems.'' [Govt. Brief at 44].
    The Respondent, however, argues that its security exceeds that 
required by the DEA for the storage of list I chemicals and therefore 
adequately protects against diversion. [Id. at 7-8].
i. Type, Form, and Quantity of Ephedrine
    The Respondent intends to handle finished form combination 
ephedrine. The Respondent's proposed combinations include a 12.5 mg 
ephedrine/200 mg guaifenesin formula, a 25 mg ephedrine/400 mg 
guaifenesin formula, and a 12.5 mg ephedrine/400 mg guaifenesin 
formula. [FOF 104]. Although the Government argues that the 
Respondent's 12.5/400 mg guaifenesin formula is unprecedented, it does 
not argue nor has it produced any evidence that the Respondent's 
product includes an atypical or excessive amount of ephedrine. 
Accordingly, the Respondent's security measures do not merit a finding 
that it has inadequate diversion controls under this provision.
ii. Location of the Premises
    Next, the Respondent's proposed location is in Phoenix, Arizona. 
[FOF 33]. The Respondent proposes to store the chemical in a large 
warehouse where other companies store their products. Due to this 
location, increased security measures may be required. However, the 
Respondent's procurement of a locked cage with limited access that is 
guard monitored during the day and alarm monitored with law enforcement 
notification at night, addresses these concerns. [FOF 143(a)].
iii. Building
    The Respondent's building is secured by an eight foot fence topped 
with razor wire, as well as surveyed by guards during normal business 
hours. The Government has provided no evidence that such is inadequate 
security. [FOF 35].
iv. Availability of Electronic Detention and Alarm Systems
    The Respondent's SOPs as well as the security document by Freeport 
Logistics demonstrate that the Respondent has electronic detection and 
alarm systems that are active at night and triggered to notify 
authorities in the event of a break-in. [FOF 35; 143(a)]. Once again, 
there is no evidence that such inadequately protects against diversion.
v. Extent of Unsupervised Public Access
    Although the Respondent's chemicals would be stored in a warehouse 
where other companies could conceivably have access, the products are 
not otherwise accessible by the public. In addition, other companies' 
access to those products is prevented by the Respondent's SOP that 
those chemicals be stored in a locked cage to which only the 
Respondent's employees have access. [FOF 142(a)].
vi. Adequacy of Supervision Over Employees Having Access to Ephedrine
    Although the Respondent has stated in its SOPs that only designated 
employees will have access to this cage, the Respondent's definition of 
employees is unusually broad. [See FOF 143(a) n. 16 (defining employees 
as ``all persons that perform any business related activity at the 
facility or regarding the ephedrine chemical drug product'')]. This 
concern is somewhat exacerbated by the fact that GFR was noted by 
Health Canada for a similar issue. [See FOF 57 (stating ``although only 
two GFR designated employees have access to raw bulk ephedrine (posses 
the physical keys), all 61 employees conceivably have access to 
ephedrine at other stages of the production (blending, bulk, tableting, 
packaging, as well as shipping)'')]. However, the Respondent will 
screen those employees by conducting background investigations and drug 
testing. The Respondent also will only allow designated employees 
access to the cage. There being no evidence to the contrary, the 
Respondent's security measures appear adequate under this provision. 
[FOF 143(a), (b)].
vii. Procedures For Handling Business Guests and Visitors
    It is the warehouse's policy that ``all Freeport contractors for 
hire must show proof of background checks for anyone entering'' the 
facility. [FOF 35]. While neither the SOPs nor Freeport's security 
document address the Respondent's handling of other non-employees that 
enter the premises, the Respondent's policy to disallow non-designated 
employees access to the ephedrine cage

[[Page 35050]]

adequately addresses any concerns that may arise under this provision. 
[See FOF 143].
viii. Adequacy Of Systems For Monitoring The Receipt, Distribution And 
Disposition Of List I Chemicals In Its Operation.
    As for the Respondent's measures under this provision, the 
Respondent's SOPs state that all schedule listed chemical products 
``are immediately placed within the storage area upon receipt or 
returned to the storage area when not being transported.'' [FOF 
143(a)(v)]. In addition, the SOPs state ``when temporarily stored in 
preparation for shipment outside of the caged area within Freeport 
Logistics, the product will be under constant observation by employees 
of the company and shipping containers will be unmarked, not indicated 
[sic] they contain [schedule listed chemicals] to guard against in-
transit losses.'' [FOF 143(d)(v)]. Although the Respondent does not 
address its policy on disposition, the Government does not argue such 
warrants an adverse finding under this provision.
    Therefore, the Government has not introduced any evidence that the 
Respondent has inadequate security at its current location. In 
addition, Mr. Mudri credibly testified that the Respondent's security 
measures are adequate to store controlled substances and thus exceed 
that required to store list I chemical products. [FOF 34, 35]. 
Although, as discussed infra, while I give less weight to other 
portions of Mr. Mudri's testimony, based on the remoteness in time of 
his most recent tenure at DEA, as well as the scope of his work for 
this agency, I find that his experience renders him more than qualified 
to testify as to the Respondent's compliance with security regulations 
that have been in effect, in relevant part, since 1995. [See 21 CFR 
1309.71 (1995), FOF 34, n.8].
    In addition, the relevant inquiry is whether the Respondent's 
current measures \23\ are adequate, so that if it were granted a 
registration today, such would be consistent with the public's 
interest. [See Mr. Checkout, 75 FR 4,418 (DEA 2010) (finding that where 
the Government has only met its burden of proof regarding allegations 
that Respondent violated storage regulations for List I chemicals, and 
Respondent, after notification of violation, quickly corrected the 
infraction, the Respondent's registration is consistent with the public 
interest)].
---------------------------------------------------------------------------

    \23\ Although the Government assessed the Respondent's prior 
location, [FOF 28-32], I find that assessment nonpersuasive given 
the additional facts pertaining to the Respondent's current location 
and its SOPs regarding security issues.
---------------------------------------------------------------------------

    Therefore, I find that factor I weighs in favor of granting the 
Respondent's application.
b. 4 OTC's Experience in Handling List I Chemicals and Compliance with 
Applicable Federal, State, and Local Law.
    Under factor two, the agency will consider the Respondent's past 
compliance with applicable federal, state, and local law as well as the 
Respondent's experience in handling list I chemicals. It has been this 
agency's longstanding principle that past performance is the best 
indicator of future compliance. [See Alra Labs v. DEA, 54 F.3d 450, 452 
(7th Cir. 1995)]. Therefore, where the Respondent has negative 
experience in handling list I chemicals, the agency will find this 
factor weighs in favor of revocation or denial of an application. [ATF 
Fitness Products, Inc., 72 FR 9,967, 9,968-9 (DEA 2007)]. In addition, 
where the Respondent has no experience in handling list I chemicals and 
cannot otherwise demonstrate compliance, the agency has denied the 
Respondent's registration. [Express Wholesale, 69 FR 62,086, 62,089 
(DEA 2004) (lack of experience plus absence of an adequate business 
plan is significant); Joys Ideas, 70 FR at 33,198; (likewise); Matthew 
D. Graham, 67 FR 10,229, 10,230 (DEA 2002)].
(1) Respondent's Compliance With DEA Law.

i. Past Experience of Richard Pierce and Kevin McIsaac in Handling 
Ephedrine

    Here, the Respondent is a new company and therefore has no 
experience in importing, handling, or distributing list I chemicals in 
the United States. [FOF 25]. Two of the Respondents owners, Kevin 
McIsaac and Richard Pierce, however, have held Canadian Class A 
Precursor Licenses. [FOF 39, 40, 47, 49, 96, 98]. The DEA has 
previously held that actions of a company's owners must be imputed to 
the company itself. [See e.g. Jacqueline Lee Pierson Energy Outlet, 64 
FR 14,269, 14,271 (DEA 1999) (stating ``DEA has consistently held that 
a retail store operates under the controls of its owners, stockholders, 
or other employees, and therefore the conduct of these individuals is 
relevant in evaluating the fitness of an applicant for 
registration.'']. Therefore, to the extent that Canada's regulation of 
list I chemicals mirror the DEA's requirements, these individuals' 
track record of compliance with Canadian law is helpful in determining 
whether the Respondent could or would similarly comply with DEA law. 
[See FOF 23].
    The Government has proven several violations of Canadian law by 
Kevin McIsaac. Specifically, McIsaac failed to lock the drawer that 
contained the key to the Class A precursor cage, failed to keep an 
ephedrine movement log, and failed to record cage ephedrine movements 
and the full name of person(s) accessing the cage. In addition, the 
agency found several ``suspicious transactions'' that McIsaac failed to 
record. [FOF 42]. The Government has provided circumstantial evidence 
\24\ that those violations formed a basis for McIsaac's surrendering of 
its precursor license to Health Canada in 2008. [FOF 43]. The 
Government also produced evidence that McIsaac shipped ephedrine to 
addresses that could not be confirmed. [FOF 44]. However, while 4 Ever 
Fit's customer list included companies with U.S. addresses while Mr. 
McIsaac owned that product, the Government failed to prove that the 4 
Ever Fit product was actually purchased by those U.S. customers during 
his ownership. [FOF 45, 46].
---------------------------------------------------------------------------

    \24\ The Respondent asserts that Mr. McIsaac surrendered his 
precursor license because his company no longer needed the 
registration. Mr. Pierce already had such a registration. Yet I do 
note the violations as being relevant here.
---------------------------------------------------------------------------

    Although the Respondent argues that ``these transactions . . . were 
made before Richard Pierce acquired the brand name 4 Ever Fit in 2008'' 
that fact is entirely irrelevant to this inquiry. [Resp. Brief at 8]. 
There is no dispute that Kevin McIsaac has a current ownership interest 
in the Respondent.\25\ Therefore, by entrusting the Respondent with a 
DEA registration, so would Kevin McIsaac be entrusted. Accordingly, 
Kevin McIsaac's history of non-compliance with Canadian law, and the 
significance of that non-compliance given his decision to then 
relinquish his Class A license, negatively impacts a finding that he 
could ensure the Respondent's compliance with DEA law.
---------------------------------------------------------------------------

    \25\ The actual percentage ownership interest that Mr. McIsaac 
has in 4OTC, however, is unclear. [See FOF 98].
---------------------------------------------------------------------------

    Next, the Government introduced evidence that GFR violated Canada's 
precursor regulations. [See FOF 55]. Specifically, the Government 
introduced Health Canada's inspection report of the Respondent, which 
stated ``GFR does not maintain a precursor access log. No record exists 
tracking personnel accessing stock either within the precursor cage, or 
within the overall warehouse.'' [FOF 57].

[[Page 35051]]

    The Respondent, however, argues that ``conduct amounts to activity 
that is legal within Canada'' and those were mere ``observations'' and 
not ``citations'' in Health Canada's report. [Resp. Brief at 9-10]. Not 
only is this argument unpersuasive, it is untrue. Canadian law clearly 
states ``[a] licensed dealer shall keep, at the licensed site, a record 
showing, for each day on which a person has access to a place at the 
site where a Class A precursor is kept, the person's name and the date 
of access.'' [Canada Department of Justice, Precursor Control 
Regulations, Sec. 85(3) (2010)]. Therefore, in failing to maintain such 
an access log, GFR violated Canadian law. In addition, the Government 
established that GFR had a shortage of 79,000 tablets of ephedrine, and 
the Respondent does not address corrective measures proposed to prevent 
this type of shortage in the future. [FOF 56; See gen. Resp. Brief].
    Nevertheless, I do find it significant that despite this regulatory 
infraction and shortages, and after numerous inspections by Health 
Canada, GFR Pharma has maintained a precursor license in Canada. [FOF 
58-60]. Indeed, the record reflects that GFR handles a significant 
amount of ephedrine and its business practices reflect that it has 
relevant experience in handling ephedrine in Canada and could similarly 
handle ephedrine in the United States, where the DEA's laws are 
similar. [See FOF 49-52].
    The Government further introduced evidence of a custom's seizure of 
GFR's product to suggest that the Respondent's past experience in 
handling ephedrine weighed in favor of denying its registration. [FOF 
61-73]. However, the illegal aspects of that shipment cannot be 
attributed to the Respondent; therefore, the Government's argument on 
this basis fails. While Better Bodies attempted import violated both 
Canadian and U.S. law,\26\ and One Stop Nutrition's failure to self 
certify violated DEA law,\27\ the Government has failed to prove that 
Mr. Pierce was aware that Better Bodies would attempt to ship its 
product into the United States or in any way encouraged or facilitated 
that shipment other than selling its product in accordance with normal 
business practices. [FOF 73]. Therefore, under these circumstances, the 
fact that Better Bodies purchased GFR's product and attempted to ship 
it illegally does not weigh in favor of denying this Respondent's 
registration.\28\
---------------------------------------------------------------------------

    \26\ Canada has exportation requirements similar to the DEA's 
and the DEA requires an entity to register with the DEA prior to 
importing a list I chemical into its territory. [See Health Canada, 
Precursor Control Regulations 6, 7, 69 (2010) (requiring an exporter 
of precursor chemicals to register with Health Canada; 21 U.S.C. 
957(a) (2006) (requiring an importer of precursor chemicals to 
register with DEA); FOF 17].
    \27\ FOF 16, 70.
    \28\ However, as discussed further under Factor V, Mr. Pierce's 
reaction to that shipment does weigh against the Respondent's 
registration.
---------------------------------------------------------------------------

ii. Respondent's Lack of Experience in Complying with DEA's Laws
    As there are some aspects of DEA law that are unique, the 
Respondent's lack of experience in complying with such law will weigh 
against its registration, unless it can otherwise demonstrate it is 
capable of compliance. [See Express Wholesale, 69 FR at 62,089; Joy's 
Ideas, 70 FR at 33,198].
    Here, the Respondent introduced its Standard Operating Procedures 
into evidence to demonstrate it is capable of complying with DEA law. 
[FOF 143]. Therein, the Respondent addressed the DEA's sales and 
recordkeeping requirements, shipping policies, importation 
requirements, and employee hiring mandates. [FOF 143]. The Respondent 
introduced testimony by its consultant that these policies were ``a 
good start with regard to operations.'' [FOF 147]. However, I give less 
weight to Mr. Mudri's testimony regarding the Respondent's compliance 
with these laws, as opposed to the security laws discussed supra, as he 
has not acted for the DEA in over 10 years, and the law has developed 
since his departure. [FOF 34, n.8, FOF 147, n. 17]. Indeed, he was 
unaware of the DEA's new requirement that retail sellers of ephedrine 
via the internet must self-certify with the DEA. [FOF 148]. 
Nevertheless, the Government has introduced no evidence nor made any 
argument that the Respondent's SOPs inadequately address the DEA's 
requirements,\29\ therefore, I do not find that its lack of experience 
in complying with DEA law weighs in favor of denying its registration 
under factors II and IV.
---------------------------------------------------------------------------

    \29\ [See gen. Govt. Brief].
---------------------------------------------------------------------------

    Accordingly, in total I do not find the Respondent's experience in 
handling ephedrine weighs against its registration. While I am troubled 
by Mr. McIsaac's violations of Canada's regulations as I find those to 
be more significant than GFR's, I am persuaded by the fact that Mr. 
Schiefelbein will oversee the day-to-day operations of the company and 
that Mr. McIsaac will have no participation in that operation. [FOF 97, 
98]. Furthermore, while I take notice of GFR's Canadian regulatory 
infractions, Mr. Pierce otherwise has a good track record of compliance 
with Health Canada's laws. [FOF 58-60]. Therefore, this experience 
lends credence to the fact that he would similarly comply with the 
DEA's laws. [See Gregg & Sons, 74 FR at 17, 524 (finding that despite 
infractions, the Respondent's overall record of compliance indicated he 
could be entrusted with a DEA registration)]. In addition, the 
Respondent's lack of experience in complying with DEA law is mitigated 
by the adequacy with which its SOPs address these laws, and the 
Government's failure to challenge them.
(2) Compliance with FDA law
    The Controlled Substances Act makes clear that the DEA is to 
consider the Respondent's compliance with all applicable federal law in 
ascertaining whether to grant it a DEA registration. [21 U.S.C. 
823(h)(2); See also ATF Fitness, 72 FR 9,967, 9,969 (DEA 2007) (stating 
``Congress did not limit the subject matter of the laws that are 
properly considered in determining whether an applicant's compliance 
record supports granting it a registration'')]. Indeed, where the 
Respondent has violated FDA law, the DEA has denied it a registration. 
[See ATF Fitness, 72 FR at 9,969 (where the FDA inspected the 
Respondent and found (1) it had in its possession products that were 
banned in 2004; (2) it had failed to comply with the FDA's 
recordkeeping requirements; and (3) it had possessed mislabeled 
products)]. Therefore, if the Respondent's proposed practice will 
violate FDA law, the Respondent's application could be denied.
    However, in a recent decision, the Administrator emphasized that 
she is without authority to definitively interpret the Food Drug and 
Cosmetic Act, and will not do so. [Tony T. Bui, M.D., 75 FR 49,799, 
49,989 (DEA 2010)]. The Administrator then applied this ruling in Paul 
Weir Battershell, N.P., Doc. No. 09-51 (July 15, 2011) (unpublished). 
There, she refused to find a violation of FDA law by a nurse-
practitioner's prescription of Human Growth Hormone (``HGH'') on the 
basis that ``whether Congress intended to criminalize all prescribing 
of HGH by non-physicians, including those who can lawfully prescribe 
under state law, is quintessentially one for judicial cognizance.'' 
[Id. at 33, n.27]. However, she also found that ``Respondent's plea 
agreement does . . . establish that he violated the FDCA by causing the 
introduction of a misbranded drug into interstate commerce.'' [Id.].
    Accordingly, two principles emerge from the Administrator's 
rulings. First, if the Government presents evidence of

[[Page 35052]]

conduct by the Respondent that is plainly inconsistent with FDA law, 
then it has met its burden of proof as to the Respondent's 
noncompliance. Similarly, if the Government establishes a violation 
through plea agreement, or other irrefutable evidence, such will also 
weigh negatively against its registration, specifically, a finding of 
the Respondent's ability to comply with the CSA. [See id.; ATF Fitness, 
72 FR at 9,969]. If, however, the Government presents evidence of 
conduct that may be a violation of FDA law, yet would require the 
agency to render an interpretation of the FDCA to reach such a 
violation, then such exercise is beyond the jurisdiction of the DEA and 
will have no bearing on the Respondent's registration under Factor 
II.\30\
---------------------------------------------------------------------------

    \30\ Here, although the Government urges throughout its brief 
that the Respondent's practice would violate FDA law, the Government 
has failed to point out any specific provision of FDA law that the 
Respondent's proposed practice would violate. [(See Govt. Brief)].
---------------------------------------------------------------------------

i. FDA Labeling and Misbranding Provisions
    Here, the Government has established a clear violation by the 
Respondent of the FDA's misbranding provisions.
    The Food and Drug Administration regulates over-the-counter 
medications by setting forth approved over the counter combinations and 
guidelines for labeling those products in an OTC Monograph. [See Cold, 
Cough, Allergy, Bronchodilator, and Antiasthmatic Drug Products for 
Over-the-Counter Human Use, Final Monograph, 51 FR 35326 (1986) 
(codified at 21 CFR part 341)]. If a product's label lacks required 
information or contains false or misleading information, the FDA deems 
that product misbranded. [21 U.S.C. 352(a),(c); FDA, Key Legal 
Concepts: ``Interstate Commerce,'' ``Adulterated,'' ``Misbranded'' 1 
(Feb. 9, 2006) (stating ``under the FD&C the term `misbranding' applies 
to . . . [f]alse or misleading information . . . [and l]ack of required 
information . . . .'')]. The FDA prohibits the introduction of a 
misbranded product into interstate commerce. [21 U.S.C. 331(b)].
    The FDA Monograph requires an OTC bronchodilator \31\ label to 
contain the following statement under the heading ``indications:'' 
``For temporary relief of shortness of breath, tightness of chest, and 
wheezing due to bronchial asthma.'' [21 CFR 341.76(b), (b)(1]. The FDA 
emphasizes that including this language is not discretionary. [Compare 
21 CFR 341.76(b)(1) with (b)(2).]. The Respondent's proposed packages 
do not contain the required language. [See FOF 127]. Therefore, as the 
Respondent's proposed packaging plainly violates the FDCA, such weighs 
in favor of denying its registration.\32\
---------------------------------------------------------------------------

    \31\ The FDA's monograph on OTC medications currently approves 
the use of ephedrine as a primary ingredient in OTC bronchodilators. 
[21 CFR 341.16]. Although in 1995, the agency promulgated a proposed 
rule to remove ephedrine from the monograph, the agency has not 
taken final action on that rule. [See 60 FR 38,643]. Similarly, 
although the FDA issued a proposed rule in 2005, eliminating 
combination ephedrine/guaifenesin from the OTC Monograph, due to its 
determination of the limited clinical effectiveness of guaifenesin 
in the treatment of asthma, the FDA has yet to issue a final ruling 
on that regulation. [See 70 FR 40,232 (2005)]. Therefore, under the 
FDA's current monograph, the Respondent's product may be sold over 
the counter as bronchodilator medications. [See FOF 104; 21 CFR 
341.18 (listing guaifenesin as the expectorant active ingredient 
included in the cough-cold monograph)].
    \32\ The FDA Monograph requires OTC bronchodilators to have a 
``statement of identity.'' Accordingly, the Monograph requires the 
label to contain ``the established name of the drug, if any, and 
identifies the product as a ``bronchodilator.'' [21 U.S.C. 341.76]. 
Here, the Respondent's label contains the word ``bronchodilator,'' 
albeit inconspicuously, under the term ``Purpose'' and under the 
section labeled ``Drug Facts.'' [FOF 127(b)(1)]. However as this 
language is not plainly inconsistent with FDA's regulation, I do not 
find the Respondent's proposed ``statement of identity'' weighs in 
favor of denying its registration.
    The OTC Monograph further requires bronchodilator products be 
labeled with the following warnings and directions for use:
    (1) ``Do not use this product unless a diagnosis of asthma has 
been made by a doctor.''
    (2) ``Do not use this product if you have heart disease, high 
blood pressure, thyroid disease, diabetes, or difficulty in 
urination due to enlargement of the prostate gland unless directed 
by a doctor.''
    (3) ``Do not use this product if you have ever been hospitalized 
for asthma or if you are taking any prescription drug for asthma 
unless directed by a doctor.''
    (4) Drug interaction precaution. ``Do not use if you are now 
taking a prescription monoamine oxidase inhibitor (MAOI) (certain 
drugs for depression, psychiatric, or emotional conditions, or 
Parkinson's disease), or for 2 weeks after stopping the MAOI drug. 
If you do not know if your prescription drug contains an MAOI, ask a 
doctor or pharmacist before taking this product.''
    (i) ``Do not continue to use this product, but seek medical 
assistance immediately if symptoms are not relieved within 1 hour or 
become worse.''
    (ii) ``Some users of this product may experience nervousness, 
tremor, sleeplessness, nausea, and loss of appetite. If these 
symptoms persist or become worse, consult your doctor.''
    (iii)``Adults and children 12 years of age and over: Oral dosage 
is 12.5 to 25 milligrams every 4 hours, not to exceed 150 milligrams 
in 24 hours, or as directed by a doctor. Do not exceed recommended 
dose unless directed by a doctor. Children under 12 years of age: 
Consult a doctor.''
    [21 CFR 341.76]. The Respondent's proposed packaging label 
contains that language verbatim. [See FOF 127].
---------------------------------------------------------------------------

    In addition to requiring certain labeling, the FDA permits OTC 
bronchodilators to list other indications, as provided in Sec.  
371.76(b), as well as other truthful and nonmisleading statements 
describing those indications. [21 CFR 341.76(b)]. None of those 
indications include using the bronchodilator for weight loss or 
otherwise as a dietary supplement. [341.76(b)(2)]. In addition, the 
definition of ``label'' in the context of misbranding has been 
construed broadly by federal courts to include a circular, pamphlet, 
brochure, newsletter, or other piece of literature that helps sell a 
product, even if it did not accompany the drug when traveling across 
state lines. [See V.E. Irons, Inc. v. United States, 244 F. 2d 34 (1st 
Cir. 1957); United States v. 47 Bottles, More or Less, Jenasol Rj 
Formula 60, 320 F.2d 564 (3d Cir. 1963)].
    Here, the Respondent's packaging originally contained a logo naming 
the product ``4 Ever Fit.'' Although this label raises concerns under 
the FDA's proscription against nonmisleading statements on the products 
packaging, the Respondent's current label, which lacks that logo, does 
not. [See FOF 112, 127]. Therefore, I find whether, under these 
circumstances, there would have been a violation of this regulation is 
moot in light of the Respondent's new measures.
    In addition, whether the Respondent's internet sale of its product 
further violates the FDCA's misbranding provisions, depends entirely on 
how it intends to market its product. Despite numerous assertions to 
the contrary, there is substantial evidence that the Respondent would 
market its product similar to its stated competitor, Vasapro. [See FOF 
143(d)(i) (assertion of compliance with FDA law); FOF 102, 111, 124 
(asserting the product will only be sold as a bronchodilator and will 
be sold separate from 4EF USA's products); FOF 91 (asserting its only 
competitor is Vasapro)]. The marketing of Vasapro's product raises 
serious misbranding concerns. [FOF 92 (marketing of Vasapro as weight 
loss and dietary supplement)]. Nevertheless, whether the FDA would deem 
such statements misleading and, accordingly, such marketing misbranding 
is an issue beyond the ken of this tribunal, and therefore will not 
weigh in favor of nor against the Respondent's registration.
    In light of the foregoing, I find that the Respondent's practice 
will plainly violate the FDCA's required labeling for indications by 
not stating that the product is ``for temporary relief of shortness of 
breath, tightness of chest, and wheezing due to bronchial asthma.'' 
However, I do not find, in toto, that the Respondent's level of 
compliance with FDA law indicates that the Respondent is either 
unwilling or unable to comply with the CSA.

[[Page 35053]]

(3) State Law
    Similar to the FDA's laws, the Respondent has no experience in 
complying with the complex state regulatory and statutory schemes that 
apply to ephedrine. [FOF 125; See FOF 129]. Some states have scheduled 
ephedrine as a controlled substance, therefore prohibiting the 
Respondent from selling its product in that state. [Id.]. Other states 
require licensure. [Id.].
    Although the Respondent has assured this tribunal throughout its 
DEA application, the hearing, and in its post-hearing brief that it 
intends to comply with all laws governing its practice,\33\ the 
Respondent has also demonstrate a general unfamiliarity with state 
laws. For example, the Respondent failed to recognize the need for a 
non-drug wholesale permit in Arizona, the state where it intends to 
store ephedrine, prior to the hearing in this matter, when the 
Government's counsel highlighted the need for it on cross-examination. 
[FOF 137, 138].
---------------------------------------------------------------------------

    \33\ FOF 97, 150; Respt. Brief at 11 (stating ``4 OTC has 
expended a great amount of time and resources in ensuring that its 
intended activities relating to the import and distribution of 
ephedrine containing products within the United States will be in 
compliance with all pertinent federal and state laws'').
---------------------------------------------------------------------------

    In addition, deficiencies in its SOPs fail to provide further 
assurance that it is capable of compliance with state law. For example, 
the SOPs' requirements for the State of Michigan indicate that a state 
license is required; they list the maximum number of packages that may 
be sold per transaction as 2; state the maximum number of grams of the 
4 OTC product that can be sold per month as 9 and cannot exceed a 25/
400 ephedrine/guaifenesin combination; indicate the Respondent must 
keep records for 6 months; and further provide the minimum age for 
purchase is 18, and both photo ID and signature are required. However, 
the SOPs completely overlook the fact that the state of Michigan 
expressly prohibits the internet sale of ephedrine into its territory. 
[FOF 134]. Therefore, if the Respondent was to rely on its SOPs and 
sell its products through the internet to customers in Michigan, it 
would violate state law.
    In addition, under the bulleted outline for New Hampshire, the SOPs 
only state ``comply with federal regulations.'' When Mr. Pierce was 
questioned about this SOP he agreed that he could be pretty certain 
that New Hampshire would allow 4 OTC to sell ephedrine into the state, 
so long as they were compliant with federal regulations. [FOF 132]. 
Later in the SOPs, however, on the chart for state requirements, there 
is a ``Y'' under the column marked ``state license'' corresponding to 
the state of New Hampshire. [FOF 132]. While the Government has not 
provided evidence of whether in fact New Hampshire does require such 
licensure, this internal inconsistency raises compliance concerns if 
this document were to be relied on by the Respondent. Furthermore, the 
Respondent's expert, Mr. Mudri, was unfamiliar with state law and 
therefore could not ensure the Respondent's compliance. [FOF 139].
    The inadequacies of the Respondents SOPs on state law underscore my 
concerns with its registration. Although the Respondent argues that it 
has completed its due diligence in investigating their legal 
obligations, they also state that their SOPs are a ``work in progress'' 
and that they are relying on their counsel to bring them further into 
compliance. [FOF 135-36]. However, as the Respondent points out, its 
application has been pending before this agency since 2007. [FOF 26]. 
Despite that amount of time, the Respondent has yet to ascertain how to 
conduct its internet business within the confines of state law. 
Therefore, I am not persuaded that it would be able to do so in the 
immediate future, and I find accordingly that its lack of experience, 
and failure to otherwise demonstrate compliance with state law, weighs 
against its registration.
c. Respondent's Prior Conviction Record Under Federal or State Laws 
Relating To Controlled Substances Or To Chemicals Controlled Under 
Federal or State Law;
    Neither the Respondent, nor its owners have been convicted of an 
offense related to controlled substances or list I chemicals, 
therefore, this factor weighs neither in favor nor against granting the 
Respondent's registration. [See Dewey C. Mackay, M.D., 75 FR 49,956, 
49,973 (DEA 2010) (stating ``while a history of criminal convictions 
for offenses involving the distribution or dispensing of controlled 
substances is a highly relevant consideration, there are any number of 
reasons why a registrant may not have been convicted of such an 
offense, and thus, the absence of such a conviction is of considerably 
less consequence in the public interest inquiry'') (citing Jayam 
Krishna-Iyer, 74 Fed Reg. 459, 461 (DEA 2009); Edmund Chein, M.D., 72 
FR 6,580, 6,593 n.22 (DEA 2007)].
d. Other Factors Affecting the Public's Interest
    The DEA will consider factors I through IV as well as other factors 
that affect the public interest to determine whether the Respondent's 
registration is consistent with the public interest. The agency has 
clarified the bounds of the considerations it makes under Factor V, 
however, in stating it is limited ``to those where there is ``a 
substantial relationship between the conduct and the CSA's purpose of 
preventing drug abuse and diversion.'' [Bui, 75 FR at 49,988; See also 
ATF Fitness, 72 FR at 9,967].
    Here, the Government does not allege that the Respondent's 
registration will be used as a conduit for the diversion of ephedrine 
into the clandestine manufacture of methamphetamine. Indeed, the threat 
of diversion created by the Respondent's registration is the internet 
sale of its products. However, the DEA does not outlaw the sale of 
ephedrine via the internet and has instead promulgated regulations 
setting daily and monthly sales limits and requiring records of all 
sales to address this issue. [See 21 U.S.C. 1310, et seq. and 1314.100 
et seq.]. Therefore, the Respondent's internet sales alone do not weigh 
in favor of denial of its registration under this factor.
    The Government argues, however, that the Respondent's registration 
is inconsistent with the public interest, due to its failure to 
disclose a list of customers at the time of registration. During the 
hearing Ms. Klett testified on behalf of the DEA that the agency 
requires a customer list along with an importer registration because 
the Department of Justice urged the DEA to implement new protocols to 
better regulate precursors to methamphetamine production. [FOF 18]. 
Therefore, once the DEA receives the customer list, it verifies each 
customer to ensure that the importer's product will not be diverted. 
[FOF 19, 20]. That directive is not in the CMEA, however, nor has the 
DEA promulgated that requirement into regulation. [See 21 U.S.C. 971 
(requiring an importer to disclose to whom the list I chemical will be 
transferred upon import (not application)) and 21 CFR Part 1313)]. 
Also, the DEA has no such requirement for domestic mail order sales, 
inferably because the DEA regulates those sales by imposing daily and 
monthly sales limits to protect against diversion. [See FOF 13-15; 21 
CFR 1314.01-13.14.155 (2011)].
    Here, however, the DEA's policies behind requiring a customer list 
are satisfied by the Respondent acting as both an importer and a 
retailer; therefore, the Government's argument for denial of the 
Respondent's application on this basis fails. Here, unlike most other 
importers, the Respondent does not intend to sell its product to 
companies who will then distribute it to end users. Instead the

[[Page 35054]]

Respondent intends to both import and distribute its product to end 
users. [FOF 22, 24]. In that regard, the Respondent has already 
provided the DEA with a customer list of its retail distributors, as it 
has only one: itself. In addition, not only has the DEA verified that 
customer, it has specifically investigated that customer to ensure that 
it has protocols in place to protect against diversion. [FOF 28, 29, 
34]. Accordingly, both the purpose behind the CMEA and DEA's policy are 
met by the disclosure that the Respondent has made in this case, and 
the Respondent's failure to disclose its retail customers does not 
otherwise weigh against its registration. [See FOF 3 (describing 
purpose behind CMEA); FOF 19 (describing purpose behind requiring 
customer list)].\34\
---------------------------------------------------------------------------

    \34\ However, to ensure that the Respondent doesn't evade the 
customer list disclosure laws by acting as both a retailer and a 
distributor, I would recommend that if the Respondent's registration 
is granted, it should be limited to importation and retail sales 
only and the Respondent should be precluded from selling its product 
to other distributors without first coordinating such registration 
modification with the DEA. [FOF 117, 118].
---------------------------------------------------------------------------

    However, under this factor, I find Mr. Pierce's reaction to the 
Better Bodies shipment into the United States, and his general 
credibility weigh in favor of denial. When asked whether he still 
conducted business with Better Bodies after the customs seizure, he 
stated, ``[w]e have no control over them buying the product from us and 
shipping it without our knowledge. [Health Canada] . . . has been 
informed.'' [FOF 73]. However, GFR does have control over to whom it 
sells its product, and GFR's decision to continue to supply a company 
that has illegally handled its product reflects a general apathy 
towards diversion. As Mr. Pierce is the President and CEO of GFR, and 
the principle owner of the Respondent, this factor raises a concern 
that he would similarly turn a blind eye to the misuse of the 
Respondent's product in the United States.
    Furthermore, Mr. Pierce's testimony throughout this proceeding 
raises credibility concerns and consequently concerns about whether he 
could be trusted with a DEA registration. Specifically, during the 
hearing Mr. Pierce testified that he conducted no market research on 
the Respondent prior to investing in it, yet was certain that there was 
a need for its product in the United States as a bronchodilator and 
that individuals would purchase it over the internet for that purpose. 
[FOF 116-122]. I find the assertion that he invested in the Respondent 
blindly, in light of his extensive business experience at GFR and other 
companies, highly unlikely. [See FOF 47, 77, 81, 87]. In addition, I 
find it more likely that he was aware of the market for ephedrine as a 
dietary supplement in the United States based on Mr. Schiefelbein's 
experience selling it as such prior to the FDA's ban in 2004, as well 
as his own experience selling it for that purpose in Canada. [FOF 83, 
53, 54]. Such knowledge likely motivated his investment, a fact he made 
efforts to conceal during this proceeding. Such lack of candor weighs 
against the Respondent's registration. [Net Wholesale, 70 FR 24,626, 
24,627 (DEA 2005)].

V. Conclusion and Recommendation

    In light of the foregoing, I find that the Government has proved by 
a preponderance of the evidence that the Respondent's registration 
would be inconsistent with the public interest due to its current 
inability to comply with state and FDA law, its lack of candor, and its 
attitude towards diversion. Once the Government has met its burden of 
proof, the burden shifts to the Respondent to establish that its 
Registration would otherwise be consistent with the public interest.
    Here, the Respondent argues that its registration is consistent 
with the public interest because, among other reasons, it has completed 
its due diligence to ensure compliance with all applicable laws and 
regulations. [See Resp. Brief at 10 (stating ``4 OTC has expended a 
great amount of time and resources in ensuring that its intended 
activities relating to the import and distribution of ephedrine 
containing products within the United States will be in compliance with 
all pertinent federal and state laws'')]. However, it is clear that the 
Respondent has yet to grasp those laws, because its stated practices 
stand contrary to them, and its SOPs otherwise fail to adequately 
address them.
    Accordingly, it is my recommendation that the Respondent's 
application be denied.

Dated: September 22, 2011

/s/Gail A. Randall
Administrative Law Judge

[FR Doc. 2012-14307 Filed 6-11-12; 8:45 am]
BILLING CODE 4410-09-P