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Jay Enterprises of Spartanburg, Inc.; Denial of Registration
FR Doc 05-9252 [Federal Register: May 10, 2005 (Volume 70, Number 89)]
[Notices] [Page 24620-24622] From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10my05-106]
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
Jay Enterprises of Spartanburg, Inc.; Denial of Registration
On September 28, 2004, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration (DEA), issued an Order to
Show Cause to Jay Enterprises of Spartanburg, Inc. (Jay Enterprises/Respondent)
proposing to deny its January 15, 2004, application for DEA Certificate of
Registration as a distributor of list I chemicals. The Order to Show Cause
alleged that granting Respondent's application would be inconsistent with the
public interest, as that term is used in 21
U.S.C. 823(h). The Order also notified Jay Enterprises that should no
request for a hearing be filed within 30 days, it hearing right would be deemed
waived.
According to the DEA investigative file, the Order to Show Cause was sent by
certified mail to Respondent at its address of record at 136 Belvedere Drive,
Spartanburg, South Carolina 29301. A notice of receipt was signed on behalf of
Jay Enterprises and returned to DEA on October 26, 2004. DEA has not received a
request for a hearing or any other reply from Jay Enterprises or anyone
purporting to represent the company in this matter.
Therefore, the Deputy Administrator of DEA, finding that (1) thirty days have
passed since delivery of the Order to Show Cause, and (2) no request for a
hearing having been received, concludes that Jay Enterprises has waived its
hearing right. See Aqui Enterprises, 67 FR 12,576 (2002). After considering
relevant material from the investigative file, the Deputy Administrator now
enters her final order without a hearing pursuant to 21
CFR 1309.53(c) and (d) and 1316.67. The Deputy Administrator finds as
follows.
List I chemicals are those that may be used in the manufacture of a
controlled substance in violation of the Controlled Substances Act. 21
U.S.C. 802(34); 21
CFR 1310.02(a). Pseudoephedrine and ephedrine are list I chemicals which are
legitimately manufactured and distributed in single entity and combination forms
as decongestants and bronchodilators, respectively. Both are used as precursor
chemicals in the illicit manufacture of methamphetamine and amphetamine.
Phenylpropanolamine, also a list I chemical, is a legitimately manufactured
and distributed product used to provide relief of symptoms from inflammation of
the sinus, nasal and upper respiratory tract tissues and for weight control.
Phenylpropanolamine is also used as a precursor in the illicit manufacture of
methamphetamine and amphetamine. In November 2000, the United States Food and
Drug Administration (FDA) issued a public health advisory requesting that drug
companies discontinue marketing products containing phenylpropanolamine and that
consumers not use them, due to risk of hemorrhagic stroke. As a result, many
pharmaceutical companies have stopped using phenylpropanolamine as an active
ingredient and, based on FDA's findings, DEA has determined that a request to
distribute phenylpropanolamine constitutes a basis for denial of an application
for DEA registration. See, e.g., Gazaly Trading, 69 FR 22561 (2004); Shani
Distributors, 68 FR 62234 (2003).
As noted in previous DEA final orders, methamphetamine is an extremely potent
central nervous system stimulant and its abuse is a persistent and growing
problem in the United States. See, e.g., Direct Wholesale, 69 FR 11654 (2004);
Branex, Inc., 69 FR 8682 (2004); Denver Wholesale, 67 FR 99986 (2002); Yemen
Wholesale Tobacco and Candy Supply, Inc., 67 Fr 9997 (2002).
The Deputy Administrator's review of the investigative file reveals that on
or about January 15, 2004, an application was submitted by the President and
sole employee of Jay Enterprises, Mr. Desai S. Devangkumar, seeking registration
to distribute ephedrine, pseudoephedrine and phenylpropanolamine listed chemical
products. In connection with the pending application, an on-site
pre-registration investigation was conducted by DEA Diversion Investigators at
the proposed registered location, which turned out to be Mr. Devangkumar's
residence. There were no security measures in place there and he stated he would
store the listed chemicals in a rental unit at a nearby storage facility.
Neither location afforded adequate physical security for storage of listed
chemicals, as required by 21
CFR 1309.71.
Mr. Devangkumar advised investigators his company distributed sundries to
retailers and that customers had requested that it carry list I chemical
products. Other than the two brands which were specifically requested by
customers, ``Max Brand'' and ``Mini-Thins,'' he was unable to identify any other
products he intended to carry if registered. Mr. Devangkamur also had no prior
experience with list I chemical and was unaware they were used as precursors in
illicitly manufacturing methamphetamine. While unable to provide a list of
specific customers, Mr. Devangkumar advised he planned to sell list I chemical
products to area convenience stores and truck stops.
DEA is aware that small illicit laboratories operate with listed chemical
products often procured, legally or illegally, from non- traditional retailers
of over-the-counter drug products, such as gas stations and convenience stores.
Some retailers acquire product from multiple distributors to mask their
acquisition of large amounts of listed chemicals. In addition, some individuals
utilize sham corporations or fraudulent records to establish a commercial
identity in order to acquire listed chemicals.
Throughout the Southeastern United States, there has been a consistent
increase in the number of illicit laboratories and enforcement teams continue to
note a trend toward smaller capacity laboratories. This is likely due to the
ease of concealment associated with small laboratories, which continue to
dominate seizures and cleanup responses.
DEA knows by experience that there exists a ``gray market'' in which certain
high strength, high quantity pseudoephedrine and ephedrine products are
distributed only to convenience stores and gas stations, from where they have a
high incidence of diversion. These grey market products are rarely sold in large
discount stores, retail pharmacies or grocery stores, where sales of therapeutic
over-the- counter drugs predominate.
Max Brand has previously been identified by DEA as the ``precursor product
predominantly encountered and seized at clandestine methamphetamine
laboratories'' and that ``[c]onvenience stores are the primary source for the
purchase of the Max Brand products, which are the preferred brand for use by
illicit methamphetamine producers, and users.'' Express Wholesale, 69 FR 62086,
62087 (2004); see also, RAM, Inc. d/b/a American Wholesale Distribution Corp.,
70 FR 11693, 11694 (2005). Similarly, Mini-Thins has been identified by DEA as a
``prime product'' in this gray market industry. See, e.g., Prachi Enterprises,
Inc., 69 FR 69407, 69408 (2004).
As addressed in previous final orders, DEA knows from industry data, market
[[Page 24621]]
studies and statistical analysis that over 90% of over-the-counter drug
remedies are sold in drug stores, supermarket chains and ``big box'' discount
retailers. Less than one percent of cough and cold remedies are sold in gas
stations or convenience stores. Studies have indicated that most convenience
stores could not be expected to sell more than $20.00 to $40.00 worth of
products containing pseudoephedrine per month. The expected sales of ephedrine
products are known to be even smaller. Furthermore, convenience stores handling
gray market products often order more product than what is required for the
legitimate market and obtain chemical products from multiple distributors. See,
e.g., RAM, Inc. d/b/a American Wholesale Distribution Corp., supra, 70 FR 11693;
Volusia Wholesale, 69 FR 69409 (2004).
Pursuant to 21 U.S.C.
823(h), the Deputy Administrator may deny an application for a Certificate
of Registration if she determines that granting the registration would be
inconsistent with the public interest. Section 823(h) requires that the
following factors be considered in determining the public interest;
(1) Maintenance of effective controls against diversion of listed chemicals
into other than legitimate channels;
(2) Compliance with applicable Federal, State and local law;
(3) Any prior conviction record under Federal or State laws relating to
controlled substances or to chemicals controlled under Federal or State law;
(4) Any past experience of the applicant in the manufacture and distribution
of chemicals; and
(5) Such other factors as are relevant to and consistent with the public
health and safety.
As with the public interest analysis for practitioners and pharmacies
pursuant to subsection (f) of section 823, these factors are to be considered in
the disjunctive; the Deputy Administrator may rely on any one or a combination
of factors and may give each factor the weight she deems appropriate in
determining whether a registration should be revoked or an application for
registration denied. See, e.g., Energy Outlet, 64 FR 14269 (1999). See also,
Henry J. Schwartz, Jr., M.D., 54 FR 16422 (1989).
The Deputy Administrator finds factor one, four and five relevant to the
pending application for registration.
As to factor one, maintenance of effective controls against diversion of
listed chemicals into other than legitimate channels, the DEA pre-registration
inspection documented inadequate security at the proposed registered location, a
personal residence. See, e.g., John E. McRae d/b/a J & H Wholesale, 69 FR
51480 (2004). Mr. Devangkumar then proposed storing listed chemical products in
a rental unit at a storage facility; which investigators reported as also having
little to no security. Accordingly, this factor weights against granting
Respondent's application.
With regard to factor four, the applicant's past experience in the
distribution of chemicals, the Deputy Administrator finds this factor relevant
based on Mr. Devangkumar's lack of knowledge and experience regarding the laws
and regulations governing handling of list I chemical products. In prior DEA
decisions, this lack of experience in handling list I chemical products has been
a factor in denying pending applications for registration. See, e.g., Direct
Wholesale, supra, 69 FR 11654; ANM Wholesale, 69 FR 11652 (2004); Xtreme
Enterprises, Inc., 67 FR 76195 (2002).
With regard to factor five, other factors relevant to and consistent with the
public safety, the Deputy Administrator finds this factor weighs heavily against
granting the application. Unlawful methamphetamine use is a growing public
health and safety concern throughout the United States and the Southeast in
particular. Ephedrine and pseudoephedrine are precursor products needed to
manufacture methamphetamine and operators of illicit methamphetamine
laboratories regularly acquire the precursor products needed to manufacture the
drug from convenience stores and gas stations, which have been identified as
constituting the gray market for list I chemical products. It is apparent that
Jay Enterprises intends on being a participant in this market.
While there are no specific prohibitions under the Controlled Substances Act
regarding the sale of listed chemical products to these entities, DEA has
nevertheless found these establishments serve as sources for the diversion of
large amounts of listed chemical products, See, e.g., ANM Wholesale, 69 FR
11,652 (2004); Xtreme Enterprises, Inc., supra, 67 FR 76195; K.V.M. Enterprises,
67 FR 70968 (2002); Sinbad Distributing, 67 FR 10232 (2002).
The Deputy Administrator has previously found that many considerations
weighed heavily against registering a distributor of list I chemicals because,
``[v]irtually all of the Respondent's customers, consisting of gas station and
convenience stores, are considered part of the gray market, in which large
amounts of listed chemicals are diverted to the illicit manufacture of
amphetamine and methamphetamine.'' Xtreme Enterprises, Inc., supra, 67 FR at
76197. As in Xtreme Enterprises, Inc., Mr. Devangkumar's lack of a criminal
record and any intent to comply with the law and regulations are far outweighed
by his lack of experience and the company's intent to sell ephedrine and
pseudoephedrine exclusively to the gray market. Because Respondent's customers
have also requested it provide them specific products identified as the
preferred precursors for illicit manufacturing, the heightened risk of diversion
should Respondent's application be granted is both obvious and unacceptable.
The reasoning of Xtreme Enterprises has been consistently applied by the
Deputy Administrator in a series of final orders denying applications for
registration. See, TNT Distributors, Inc., 70 FR 12729 (2005); Titan Wholesale,
Inc., supra, 70 FR 12,727; RAM, Inc. d/b/a American Wholesale Distribution
Corp., supra, 70 FR 11693; Al-Alousi, Inc., 70 FR 3561 (2005); Volusia
Wholesale, supra, 69 FR 69409; Prachi Enterprises, Inc., supra, 69 FR 69407; CWK
Enterprises, Inc., 69 FR 69400 (2004); J & S Distributors, 69 FR 62089
(2004); Express Wholesale, supra, 69 FR 62086; Absolute Distributing, Inc., 69
FR 62078 (2004).
Finally, due to the apparent lack of safety associated with the use of
phenylpropanolamine, factor five is also relevant to Respondent's proposal to
distribute that product. DEA has previously determined such a request
constitutes a ground under factor five for denial of an application for
registration. See J & S Distributors, supra, 69 FR 62089; Gazaly Trading,
supra, 69 FR 22561; William E. ``Bill'' Smith d/ b/a B & B Wholesale, 69 FR
22559 (2004); Shani Distributors, supra, 68 FR 62324.
Based on the foregoing, the Deputy Administrator concludes that granting the
pending application would be inconsistent with the public interest.
Accordingly, the Deputy Administrator of the Drug Enforcement Administration,
pursuant to the authority vested in her by 21
U.S.C. 823 and 824
and 28 CFR 0.100(b) and 0.104, hereby orders the pending application for DEA
Certificate of Registration, previously submitted by Jay Enterprises of
Spartanburg, Inc., be, and it hereby is denied. This order is effective June 9,
2005.
[[Page 24622]]
Dated: May 2, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-9252 Filed 5-9-05; 8:45 am]
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