03-27085. SPA Dynamic Wholesalers: Denial of Request for Registration to Handle List I Chemicals

On May 1, 2001, Spa Dynamic Wholesalers (Respondent) applied to be registered with the Drug Enforcement Administration (DEA) as a distributor of the List I chemicals ephedrine, pseudoephedrine and phenylpropanolamine (PPA), Control Number K2202014201J. On April 24, 2002, after an investigation by DEA investigators, the Deputy Assistant Administrator, Office of Diversion Control, issued an Order to Show Cause (OTSC) why DEA should not deny Respondent's application. Prior to the issuance of the OTSC, on March 13, 2002, Respondent's owner Ann Marie Tess Wrigley (Ms. Wrigley) left a voicemail message at DEA regarding the status of her application. The call-back number left by Ms. Wrigley turned out to be a number for a facsimile machine. A DEA investigator used the number to send a facsimile to Ms. Wrigley, asking her to contact the investigator at DEA. Ms. Wrigley did not respond to the fax, and has not contacted DEA since that time.

The OTSC was sent by certified mail to the latest address provided by Ms. Wrigley to DEA. The OTSC was not claimed, indicating that Respondent was no longer at the latest address provided by Ms. Wrigley, and had left no forwarding address.Since the OTSC was issued, Ms. Wrigley has not contacted DEA concerning the status of her application.

Therefore, the Acting Deputy Administrator, finding that DEA has made reasonable attempts to serve the OTSC on Respondent, and no request for a hearing has been received, concludes that Respondent is deemed to have waived its hearing right. The Acting Deputy Administrator has carefully reviewed the entire record in this matter, as defined above, and hereby issues this final rule and final order prescribed by 21 CFR 1301.43 and 21 CFR 1301.46, based upon the following finding of fact and conclusions.

The Acting Deputy Administrator finds that the List I chemicals ephedrine and pseudoephedrine are legitimate chemicals that also may be used in the illicit manufacture of a controlled substance in violation of the Controlled Substances Act. 21 U.S.C. 802(34), 21 CFR 1310.02(a). Both chemicals are commonly used to illegally manufacture methamphetamine, a schedule II controlled substance.

The Food and Drug Administration (FDA) has approved ephedrine for over-the-counter (OTC) use as a bronchodilator for the treatment of asthma. Ephedrine is also lawfully marketed as a nasal decongestant. Ephedrine is also used lawfully in hospitals in the treatment of hypotensive crisis and acute bronchospasm. Physicians have also used ephedrine to promote urinary continence. OTC ephedrine products have also been misused for their stimulant properties and for use as diet aids. FDA has not approved these products for such uses.

Pseudoephedrine is lawfully marketed under the Federal Food Drug and Cosmetic Act provisions for OTC use as a decongestant. It is often found in combination with other active ingredients such as antihistamines, expectorants and/or antitussives.

On November 6, 2000, the FDA issued a public health advisory warning of the dangers associated with the use of PPA, including, but not limited to, the risk of hemorrhagic stroke. The FDA advised that it was taking steps to remove PPA from all drug products and requested that all drug companies discontinue the sale of products containing this listed chemicals.

DEA has observed nationwide that the vast majority of sales of ephedrine and pseudoephedrine drug products destined for end users are made in supermarkets, drug stores, and large discount stores. An extremely small amount of face-to-face purchases are made in smaller retail outlets. DEA has observed that many smaller or non-traditional stores, such as liquor stores, gas stations, and some small markets, purchase inordinate amounts of these products and become conduits for the diversion of listed chemicals into illicit drug manufacturing.

During March 2001, DEA utilized an expert in the field of retail marketing and statistics to analyze national sales data for over-the-counter non-prescription drugs. Using official Government and commercially available sales data, he was able to construct a model of the traditional market for pseudoephedrine in the retail sector. His study showed that over 90% of all sales of non-prescription drug products occurred in drug stores, grocery stores and large discount merchandisers. A very small percentage of such sales occurred in convenience stores. Additionally, this expert analyzed expected sales of non-prescription drugs by convenience stores and found that they constituted about 2% of their total sales. This analysis was consistent with sales data provided by the convenience store industry.

DEA clandestine laboratory teams continue to note the trend in laboratories toward smaller capacity laboratories. This is likely due to the ease of concealment associated with smaller capacity laboratories. This is likely due to the ease of concealment associated with smaller laboratories and the ability to acquire listed chemical precursor product from smaller sources. Small capacity labs continue to dominate law enforcement seizures and environmental cleanups. Small illicit laboratories operate with listed chemical products often procured, legally or illegally, from non-traditional retailers of over-the-counter drug products, such as gas stations and small retail markets. Some retailers acquire product from multiple distributors to mask their acquisition of large amounts of listed chemicals.

DEA investigators have learned that the primarily market shares for sales of combination ephedrine products belong to the manufacturers of Primatene and Bronkaid products. The national sales of these products in tablet forms have been on the decline for several years, since end-users prefer an inhalant version. In addition, DEA knows that the nationwide sales of combination ephedrine in the traditional market are much smaller than the market for other traditional cough and cold remedies, including products containing pseudoephedrine.

On May 1, 2001, Ms. Wrigley submitted, on behalf of her company, an application for DEA registration as a distributor of the List I chemicals ephedrine, pseudoephedrine and PPA. Respondent's listed address on the application was in 7636 Village Trail, Dallas, Texas 75240. The application was received by the Dallas Field Division.

DEA investigators learned that in early 2001, Ms. Wrigley applied for a Precursor Chemical/Laboratory Apparatus Business permit with the Texas Department of Public Safety (DPS) under the name Dynamic Wholesalers, at a listed address of 840 Central Parkway East, #120, in Plano Texas. A subsequent inspection of the physical location revealed that Ms. Wrigley had not physically occupied the premises, and the telephone number listed on the application was found to be fictitious.

On December 11, 2001, Ms. Wrigley filed a second application for licensure to DPS under the name Spa Dynamic Wholesalers, with a business address of 1108 Summit Avenue #6, Plano, Texas. Ms. Wrigley subsequently informed DEA that she would seek registration at this location, and not the location provided in her May 2001 application for DEA registration. On December 11, 2001, DEA investigators accompanied a DPS investigator during DPS's inspection of Respondent at the Summit Avenue location. When the investigators arrived at that location, they found it unlocked and vacant, without furniture or telephone service. The property manager at the location told the investigators that Ms. Wrigley failed to sign a contract and had not taken possession of the location. The property manager also said that on the previous day, Ms. Wrigley stated that she would not be occupying the Summit Avenue location for business purposes.

On December 11, 2001, DEA investigators contacted Ms. Wrigley, informed her of their concerns, and requested that she withdraw her application. Ms. Wrigley refused to withdraw, and informed the investigators that her company would be ready for a pre-registrant inspection on December 20, 2001.

On December 20, 2001, DEA investigators went to Respondent's physical location on Summit Avenue and conducted a pre-registration investigation of Respondent. Ms. Wrigley informed the investigators that Respondent intended to distribute List I chemicals to convenience stores in the Dallas Metropolitan area. She estimated that List I chemicals would comprise 30 to 45 percent of her business. Ms. Wrigley stated that she had no experience with sales of OTC medications or listed chemicals. She informed the investigators that her brother in Kansas owned a wholesale establishment selling similar products and was “making a lot of money,” so she wanted to do the same.

Ms. Wrigley also admitted that she had no experience in reporting suspicious orders. The investigators advised her of the reporting requirements and provided her by facsimile a copy of the threshold regulations. The investigators advised Ms. Wrigley of the necessity of identifying and verifying customers, and of DEA recordkeeping requirements. The investigators inspected the security measures at Respondent's location and found that security was adequate.

When asked which brands of List I chemicals she intended to sell, Ms. Wrigley provided a list of brand names, many of which are manufactured by companies whose products had been found in methamphetamine lab dump sites. Moreover, the list of products provided by Ms. Wrigley contained only ephedrine and ephedrine combination products. The list showed that Ms. Wrigley intended to sell, among other things, 60 count bottles of ephedrine. This is significant in that this type of packaging is not normally seen in traditional retail establishments, and is the packaging favored by methamphetamine manufacturers.

When asked about the identity of her customers, Ms. Wrigley provided the investigators with a list of five customers. When called by the investigators, three of the five customers had either never heard of Respondent or Ms. Wrigley, or indicated that they would not by buying from Respondent. One customer was waiting for Respondent to mail him its inventory so that he could determine whether he would become a customer of Respondent. One customer indicated that she would buy from Respondent.

Ms. Wrigley also provided a “cold call list” that she had purchased. She said that she intended to use the list to obtain more customers. A review of the list by DEA investigators showed that most of the potential customers on the list were convenience stores.

Based upon the above, the Acting Deputy Administrator will now consider the factors used by DEA to determine whether the issuance of a DEA Certificate of Registration is in the public interest. Under 21 U.S.C. 823(h), the Attorney General shall register an applicant to distribute a List I chemical unless the Attorney General determines that the registration of the applicant is inconsistent with the public interest. (This function has been delegated to Administrator of DEA.) In considering the public interest, the Acting Deputy Administrator shall consider

1. Maintenance by the applicant of effective controls against diversion of listed chemical into other than legitimate channels;

2. Compliance by the applicant with applicable Federal, State, and local laws;

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.

Consideration of the first factor weighs against Respondent. Security was adequate at the physical location of the business that the DEA investigators visited. Based upon the investigators' inability to contact Ms. Wrigley in February 2002, it appears that Ms. Wrigley is no longer at the location that the DEA investigators inspected. Accordingly, DEA has no knowledge of Respondent's current security measures.

With regard to the second factor, there is no evidence that Ms. Wrigley has failed to comply with Federal, State or local law. As for the third factor, there is no evidence that Ms. Wrigley has any prior convictions related to controlled substances or chemicals. Accordingly, the second and third factors weigh in Respondent's favor. Addressing the fourth factor, Ms. Wrigley has no experience in the manufacture or distribution of chemicals, which weights against Respondent.

With regard to the fifth factor, many considerations weigh heavily against registering Respondent as a distributor of List I chemicals. The great majority of Respondent's potential customers will be convene stores. 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. Ms. Wrigley admitted that a portion of her sales will consist of 60 count bottle of ephedrine, the favored packaging of illicit methamphetamine manufactures.

The Acting Deputy Administrator also finds that Respondent's frequent changes of address weigh against Respondent in its attempt to obtain a DEA registration. The changes of address create the impression that Respondent is an unstable, “fly by night” concern. Ms. Wrigley's failure to notify DEA of changes of address indicates a serious failure to comprehend the responsibilities of the holder of a DEA Certificate of Registration. The Acting Deputy Administrator finds that Ms. Wrigley's lack of a criminal record and compliance with the law are far outweighed by her lack of experience with selling List I chemicals, DEA's lack of knowledge concerning Respondent's current security system and her frequent changes of address without notice to DEA. Moreover, Respondent's product mix and potential sales of combination ephedrine products are inconsistent with the known legitimate market and known end-user demand for products of this type. Therefore Respondent would be serving an illegitimate market for these products, and registration of Respondent as a distributor of List I chemicals would likely lead to increased diversion of List I chemicals.

Accordingly, the Acting 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 and 0.104, hereby finds that registration of Respondent as a distributor of List I chemicals is not in the public interest. The Acting Deputy Administrator hereby orders that the application for a DEA Certificate of Registration and any requests for renewal or modification submitted by Respondent Spa Dynamics Wholesalers be, and hereby are, denied.

Dated: October 9, 2003.

Michele M. Leonhart,

Acting Deputy Administrator.