04-23705. Absolute Distributing, Inc.; Denial of Registration

On May 6, 2004, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration (DEA), issued an Order to Show Cause to Absolute Distributing, Inc. (Absolute) proposing to deny its May 12, 2003, application for DEA Certificate of Registration as a distributor of list I chemicals. The Order to Show Cause alleged that granting Absolute's application would be inconsistent with the public interest, as that term is used in 21 U.S.C. 823(h) and 824(a). The order also notified Absolute that should no request for a hearing be filed within 30 days, its hearing right would be deemed waived.

According to the DEA investigative file, the Order to Show Cause was sent by certified mail to Absolute at its proposed registered location at 2005 S. 300 W., Suite C, Salt Lake City, Utah, 84115. It was received on May 10, 2004, and DEA has not received a request for a hearing or any other reply from Absolute 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 Absolute 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 C.F.R. 1309.53(c) and (d) and 1316.67. The Deputy Administrator finds as follows.

List I chemicals are those that may be used in the manufacture of a controlled substance in violation of the Controlled Substances Act. 21 U.S.C. 802(34); 21 CFR 1310.02(a). Pseudoephedrine and ephedrine are list I chemicals commonly used to illegally manufacture methamphetamine, a Schedule II controlled substance. As noted in previous DEA final orders, methamphetamine is an extremely potent central nervous system stimulant, and its abuse is a persistent and growing problem in the United States. See e.g., Direct Wholesale, 69 FR 11,654 (2004); Branex, Inc., 69 FR 8,682 (2004); Yemen Wholesale Tobacco and Candy Supply, Inc., 67 FR 9,997 (2002); Denver Wholesale, 67 FR 99,986 (2002).

The Deputy Administrator's review of the investigative file reveals that an application dated May 12, 2003, was submitted by Mr. David T. Milton, seeking registration to distribute ephedrine, a list I chemical product. Subsequently, Mr. Milton, the President of Absolute, asked that the application be changed to reflect the company's name as registrant.

In connection with the pending application, an on-site pre-registration investigation was conducted on August 18, 2003. Mr. Milton advised investigators that he had been solicited by Premium Oil Company (Premium) to obtain a DEA registration so that Absolute could provide ephedrine to Premium's convenience stores and gas stations, which are located throughout the State of Utah. Premium had also provided Absolute with office and storage space for ephedrine products so that Premium could have easy access to its distributor.

Premium had previously been obtaining its list I chemical products from Spencer Distributing. However, on May 22, 2003, that company surrendered its DEA registration. Mr. Milton was aware that Premium considered ephedrine products to be good sources of income, “better than fuel,” and the company needed Absolute to replace Spencer Distributing as its supplier.

Mr. Milton provided investigators only a generalized list of potential customers, which included almost every gas station and their associated convenience stores in the State of Utah. He could not provide a confirmed list of customers who would purchase the listed chemical products from the company. While he also intended to distribute sundry items if he obtained a DEA registration, Mr. Milton estimated that 30% of Absolute's sales would be ephedrine products.

He intended to primarily distribute 50 and 60 count bottles of list I chemical products. This form of packaging and quantities are preferred by individuals illicitly manufacturing methamphetamine. Further, one of Absolute's intended suppliers had already received two warning letters from DEA that its list I chemical products had been discovered in various illicit settings consistent with clandestine methamphetamine manufacturing.

Neither Mr. Milton nor his brother, the company's Vice-President, had any experience in handling or distributing listed chemical products. On May 1, 2003, diversion investigators had met with Mr. Milton. Among other items, they provided a copy of the DEA Chemical Handler's Manual and a notice regarding combination ephedrine and pseudoephrine products. The investigators explained how ephedrine and pseudoephedrine are used as immediate precursors for making methamphetamine and discussed the history and problems of methamphetamine in Utah.

On August 18, 2003, long after this meeting, investigators were arranging for the pre-registration inspection. At that time they asked Mr. Milton what he knew about the list I chemical products he was seeking to distribute. He replied that he knew nothing about list I chemicals and, while he had been told by investigators the product was used to manufacture methamphetamine, he had no personal proof of that fact.

On April 18, 2001, state investigators made an undercover purchase of Two-Way Max Brand Ephedrine 25 mg. tablets (60 tablets per bottle for a total of 480 dosage units) from a Premium owned gas station/convenience store in West Jordan, Utah. The total amount of ephedrine was 12 grams, which at the time was the threshold amount an individual could legally possess in Utah. The conversion included the topic of using ephedrine to manufacture methamphetamine and the employee suggested the undercover agents return daily to buy eight bottles of ephedrine so they could obtain what they needed. As discussed above Absolute intended to supply its list I chemical products to convenience stores and service stations owned by Premium.

Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an application for 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 14,269 (1999). See also, Henry J. Schwartz, Jr., M.D., 54 FR 16,422 (1989).

The Deputy Administrator finds factors four and five relevant to the pending application for registration.

With regard to factor four, the applicant's past experience in the distribution of chemicals, the Deputy Administrator finds this factor relevant based on Mr. Milton's lack of knowledge 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, 69 FR 11,654 (2004); ANM Wholesale, 69 FR 11,652 (2004); Xtreme Enterprises, Inc., 67 FR 76,195 (2002).

With regard to factor five, other factors relevant to and consistent with the public safety, the Deputy Administrator finds this factor weighs heavily against granting the application. Unlawful methamphetamine use is a growing public health and safety concern throughout the United States and in the State of Utah and ephedrine and pseudoephedrine are precursor products needed to manufacture methamphetamine. Operators of illicit methamphetamine laboratories regularly acquire the precursor products needed to manufacture the drug from convenience stores and gas stations which, in prior DEA decisions, have been identified as constituting the “grey market” for list I chemical products. Absolute's intended customer base consists entirely of such businesses.

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 76,195; Sinbad Distributing, 67 FR 10,232 (2002); K.V.M. Enterprises, 67 FR 70,968 (2002).

The Deputy Administrator has previously found that many considerations weighed heavily against registering a distributor of list I chemicals because, “[v]irtually all of the Respondent's customers, consisting of gas stations and convenience stores, are considered part of the grey market, in which large amounts of listed chemicals are diverted to the illicit manufacture of amphetamine and methamphetamine.” Xtreme Enterprises, Inc., supra, 67 FR at 76,197. As in Xtreme Enterprises, Inc., Mr. Milton's lack of a criminal record and stated intent to comply with the law and regulations are far outweighed by his lack of experience and the company's intent to sell ephedrine exclusively to the gray market.

Additionally, the Deputy Administrator is troubled by Mr. Milton's comments suggesting he still questioned whether list I chemical products are being diverted for illicit manufacturing, even after being specifically educated by DEA investigators to the contrary. His professed personal ignorance of the methamphetamine manufacturing problem in Utah suggests he is motivated by financial gain and would be unable or unwilling to comply with the responsibilities of a DEA registrant.

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 Absolute Distributing, Inc., be, and it hereby is, denied. This order is effective November 22, 2004.

Dated: October 5, 2004.

Michelle M. Leonhart,

Deputy Administrator.