Titan Wholesale, Inc.; Denial of Registration, 12727-12729 [05-5070]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 70, Number 49 (Tuesday, March 15, 2005)]
[Notices]
[Pages 12727-12729]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-5070]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Titan Wholesale, Inc.; Denial of Registration

    On October 13, 2004, the Deputy Assistant Administrator, Office of 
Division Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Titan Wholesale, Inc. (Titan) proposing to deny 
its August 14, 2003, application for DEA Certificate of Registration as 
a distributor of list I chemicals. The Order to Show Cause alleged that 
granting Titan'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 Titan

[[Page 12728]]

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 Titan at its proposed registered location 
at 4995 Outland Center Drive, Building E, Suite 107, Memphis, Tennessee 
37075. It was received on October 18, 2004, and DEA has not received a 
request for a hearing or any other reply from Titan 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 Titan 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 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 on or about August 18, 2003, an application was submitted by Mr. 
Chris Pelt, owner and operator of Titan, seeking registration to 
distribute ephedrine and pseudoephedrine list I chemical products.
    In connection with the pending application, a pre-registration 
investigation was conducted by investigators for DEA's Nashville, 
Tennessee District Office. It was determined Titan was incorporated in 
Tennessee on February 2, 2000. The company's stock is owned entirely by 
Mr. Pelt and Titan has a total of seven employees, including its owner. 
There is no evidence that any of Titan's employees or owner had 
experience in distributing list I chemicals.
    Mr. Pelt advised investigators that Titan was a wholesale grocery 
broker which engaged in nationwide searches for opportunities to 
purchase in-transit shipments of grocery products which were not needed 
by their intended recipients, usually because of over-stocking or over-
supply. The shipments would be purchased at a discount and resold, 
ideally, while still in transit to another purchaser at a higher price. 
Titan had no fixed customer list, but apparently dealt with sellers and 
purchasers as opportunities presented themselves.
    According to Mr. Pelt, if Titan was registered, it would acquire 
and distribute listed chemicals in the same manner as its grocery 
products, i.e., they would not necessarily be stored at the registered 
premises but could be ``diverted in-transit'' to locations wherever 
prospective purchasers might be. The products might be shipped from a 
point of purchase to a point of sale without Titan ever physically 
handling or possessing them and it is unknown whether or not the 
distributions would take place among and between DEA registrants.
    When Mr. Pelt was advised by investigators that Titan's proposed 
business methods apparently ran counter to DEA regulations intended to 
prevent diversion and ensure safe handling of listed chemicals, he 
rejected that suggestion. He also represented that two specific DEA 
registrants were already operating in the manner he proposed. However, 
inquiries by investigators refuted that claim.
    DEA has previously found there is a substantial methamphetamine 
abuse problem and history of trafficking in precursors in the area 
covered by DEA's Atlanta Field Division, which includes Tennessee, 
Georgia, North Carolina and South Carolina. DEA is aware distributors 
or retailers serving in the illicit methamphetamine business observe no 
borders and trade across state lines. In fact, where precursor laws are 
stringent, out-of-state distributors often make direct shipments to 
retailers without observing state requirements.
    DEA is also 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.
    In Tennessee, there has been a consistent increase in the number of 
illicit laboratories and enforcement teams have noted a trend toward 
smaller capacity laboratories. This is likely due to the ease of 
concealment associated with smaller laboratories, which continue to 
dominate seizures and cleanup responses in that state. In the second 
quarter of 2002, Tennessee led in the number of clandestine 
laboratories seized in the area, accounting for approximately 50 
percent of these seizures. See CWK Enterprises, Inc., 69 FR 69,400 
(2004).
    DEA has found there exists a ``gray market'' in which certain high 
strength, high quantity pseudoephedrine and ephedrine products are 
distributed to convenience stores and gas stations, from where they 
have a high incidence of diversion. These grey market products are not 
sold in large discount stores, retail pharmacies or grocery stores, 
where sales of therapeutic over-the-counter drugs predominate. DEA also 
knows from industry data, market 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 that one 
percent of cough and cold remedies are sold in gas station or 
convenience stores. 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 Prachi Enterprises, Inc., 69 FR 69,407 (2004); 
Volusia Wholesale, 69 FR 69,409 (2004), CWK Enterprises, Inc., supra, 
69 FR 69,400.
    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 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

[[Page 12729]]

pursuant to subsection (f) of section 823, these factors are 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 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 
Deputy Administrator has previously held that this factor and 21 CFR 
1309 71(b)(8) encompass more than mere physical security of listed 
chemicals while in storage or transit. See e.g., Al-Alousi, Inc., 70 FR 
3,561 (2005) [inability of applicant to adequately verify location and 
identities of prospective customers considered under factor one]; OTC 
Distribution Company, 68 FR 70,538, 70,542 (2003); see also Aqui 
Enterprises, supra 67 FR 12,276; Alfred Khalily, Inc., 64 FR 31,289 
(1999).
    Titan's proposed process of purchasing in-transit shipments of 
listed chemicals and redirecting them to other buyers fails to provide 
adequate protection and safeguards for preventing listed chemicals from 
diversion into other than legitimate channels. The company's methods 
would not require it to ever have physical control of the chemicals, 
nor would it ensure compilation of adequate inventories or complete and 
accurate records. It also fails to provide for the consistent and 
accurate verification of identities of the persons and entities which 
would ultimately be receiving the listed chemicals.
    In sum, Titan's proposed methods run counter to the distribution 
and accountability safeguards envisioned under the Controlled 
Substances Act and its implementing regulations and fail to provide 
effective controls against diversion of listed chemicals. Accordingly, 
factor one weighs against granting the pending 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 the applicant'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 has been a factor in denying pending 
applications for registration. See, e.g., Direct Wholesale, supra, 69 
FR 11,654; ANM Wholesale, 69 FR 11,652 (2004); Extreme 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 also weighs against granting the application.
    Unlawful methamphetamine use is a growing public health and safety 
concern throughout the United States and Southeast. 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, in prior DEA decision, 
have been identified as constituting the grey market for list I 
chemical products. While there are no specific prohibitions under the 
Controlled Substances Act regarding the sale of listed chemical 
products to these entitles, DEA has nevertheless found these 
establishments serve as sources for the diversion of large amounts of 
listed chemical products. See, e.g., ANM Wholesale, supra, 69 FR 
11,652; 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 station 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.
    Because of its proposed methods, Titan could not identify the 
specific ephedrine and pseudoephedrine products it intended to 
distribute or their quantities and strengths. It also could not 
identify any specific customers or suppliers. While Titan did not state 
whether or not it would enter the gray market, it is reasonable to 
infer its business practices would invite eventual participation in 
that sector. The company intends to search nationwide for bulk 
quantities of chemicals becoming available for sale while in-shipment. 
It would buy them at a discount and redirect them to new purchasers, 
ideally without ever exercising physical possession of the product. 
Titan would thus be engaging in apparently random transactions, 
occurring whenever it discovers an opportunity to buy low and resell at 
a profit.
    Mr. Pelt did tell investigators that if Titan's application was 
granted, he would try to develop business relationships with large 
chain drug stores. However, given his company's lack of specific 
prospective buyers and suppliers, its inability to identify products, 
quantities and strengths and its aggressive business practices, coupled 
with the absence of effective controls described under factor one 
above, the Deputy Administrator views the risk of Titan entering the 
gray market as real and significant, once it discovers buyers from that 
sector willing to purchase listed chemicals at prices yielding Titan 
large profits.
    The Deputy Administrator is also concerned with Mr. Pelt's refusal 
to consider alternative business methods and his inaccurate 
representations regarding the purportedly similar business practices of 
two other registrants. This suggests that Mr. Pelt and Titan would 
either be unwilling or unable to successfully fulfill the significant 
responsibilities of a 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 Titan Enterprises, Inc., be, and it is hereby is, denied. This order 
is effective April 14, 2005.

    Dated: February 14, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-5070 Filed 3-14-05; 8:45 am]
BILLING CODE 4410-09-M