Tri-County Bait Distributors; Denial of Application, 52160-52165 [E6-14524]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 71, Number 170 (Friday, September 1, 2006)]
[Notices]
[Pages 52160-52165]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-14524]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 04-4]


Tri-County Bait Distributors; Denial of Application

Introduction and Procedural History

    On August 11, 2003, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to Tri-County Bait Distributors (Respondent) of 
Dorchester, South Carolina. The Show Cause Order proposed to deny 
Respondent's application for a DEA Certificate of Registration as a 
distributor of the List I chemicals ephedrine and pseudoephedrine on 
the ground that its registration would be inconsistent with the public 
interest as that term is defined in 21 U.S.C. 823(h).
    The Show Cause Order specifically alleged that Respondent was 
seeking to distribute products containing ephedrine and 
pseudoephedrine, which are precursor chemicals that are used in the 
production of methamphetamine, a schedule II controlled substance. Show 
Cause Order at 1. The Show Cause Order alleged that Respondent was 
proposing to sell these products exclusively to convenience stores and 
combination bait shops/convenience stores, and that these 
establishments are part of the non-traditional or gray market for these 
products. Id. at 4. The Show Cause Order further alleged that 
Respondent's owner, Mr. Terry L. Carroll, had stated that ``he had no 
prior experience in the sale or marketing of OTC medications,'' and 
that the distribution of List I chemicals would be ``approximately 20 
percent of his business.'' Id. at 2. The Show Cause Order also alleged 
that ``many smaller or non-traditional stores * * * purchase inordinate 
amounts of these products and become conduits for the diversion of 
listed chemical[s] into illicit drug manufacturing.'' Id. at 2-3. 
Finally, the Show Cause Order alleged that Respondent's proposed 
``product mix and sales of combination ephedrine products are 
inconsistent with the known legitimate market and known end-user demand 
for products of this type'' and that the registration of Respondent 
``would likely lead to increased diversion of List I chemicals.'' Id. 
at 4.
    Respondent requested a hearing. The matter was assigned to 
Administrative Law Judge (ALJ) Mary Ellen Bittner, who conducted a 
hearing in Charleston, South Carolina, on October 5, 2004. Both the 
Government and Respondent submitted post-hearing briefs.
    On July 6, 2005, the ALJ issued her decision. The ALJ concluded 
that the Government had proved by a preponderance of the evidence that 
Respondent's registration would be inconsistent with the public 
interest. See ALJ at 15-17. The ALJ thus recommended that Respondent's 
application be denied. Id. at 17. Neither party filed exceptions.

[[Page 52161]]

    Having considered the record as a whole, I hereby issue this 
decision and final order. Except as expressly noted herein, I adopt the 
ALJ's findings of fact and conclusions of law. For the reasons set 
forth below, I concur with the ALJ's conclusion that granting 
Respondent's application for registration would be inconsistent with 
the public interest and therefore deny Respondent's application.

Findings of Fact

    Respondent is a supplier of bait, fishing gear, and other items 
including over-the-counter medicines that do not contain List I 
chemicals to tackle shops, convenience stores, gas stations and marinas 
that are located in several rural counties in South Carolina. 
Respondent is located in Dorchester, South Carolina, and is owned by 
Mr. Terry Carroll. Because Respondent's business is seasonal in nature 
with a large variation in sales between summer and winter months, on 
November 21, 2002, Mr. Carroll applied for a registration to distribute 
the List I chemicals ephedrine and pseudoephedrine.

Methamphetamine and the Market for List I Chemicals

    Both ephedrine and pseudoephedrine have therapeutic uses. They are, 
however, regulated under the Controlled Substances Act because they are 
precursor chemicals that are easily extracted from legal over-the-
counter products and used in the illicit manufacture of 
methamphetamine. See 21 U.S.C. 802(34). Methamphetamine is a powerful 
and addictive central nervous system stimulant, see A-1 Distribution 
Wholesale, 70 FR 28573 (2005), and is a schedule II controlled 
substance. 21 CFR 1308.12(d).
    The illegal manufacture and abuse of methamphetamine pose a grave 
threat to this country. Methamphetamine abuse had destroyed numerous 
lives and families and ravaged communities. The manufacture of 
methamphetamine also causes serious environmental harms because of the 
toxic nature of the chemicals. Tr. at 96.
    The State of South Carolina, which is where Respondent does 
business, has experienced a substantial increase in the number of 
illegal methamphetamine labs. According to the testimony of a DEA 
special agent who serves as the agency's Clandestine Laboratory 
Coordinator for South Carolina, in 2001 DEA found ten clandestine lab 
sites in the State. Tr. 100. In 2002, DEA found 100 clandestine labs, 
and in 2003, the agency found 130 sites. Id. The DEA Special Agent 
further testified that in 2004, DEA expected that it would find between 
165 to 185 labs. Id. These labs are predominately found in rural areas 
of the State. Id. at 95.
    The DEA Special Agent further testified that while the amount of 
methamphetamine that can be produced from ephedrine and pseudoephedrine 
varies with the skill of a methamphetamine cook, it is possible to 
obtain a yield of 100 percent. The Special Agent also testified that 
even with a 50 percent yield, 1000 grams of ephedrine or 
pseudoephedrine would yield 500 grams of methamphetamine which has a 
street value of $50,000. Id. at 100.
    Another Government witness, Mark Rubbins, who was then Chief of the 
Domestic Chemical Control Unit in the Chemical Control Section at DEA 
Headquarters, testified by written declaration. Mr. Rubbins testified 
that the traditional market for products containing ephedrine and 
pseudoephedrine was comprised of chain grocery stores, national 
pharmacy chains, and large retail outlets. These stores ``normally sell 
pseudoephedrine in lower strengths such as 30 mg. tablets'' and in 
smaller unit sizes such as blister packs not exceeding 48 dosage units 
per package. Gov. Exh. 6. at 5. Moreover, manufacturers of products 
sold in this market either sell direct to the chain stores or through 
large nationally recognized distributors. Id. at 6.
    Mr. Rubbins further testified that beginning in the mid-1990s, 
following the enactment of the Domestic Chemical Diversion Control Act 
of 1993 and the Comprehensive Methamphetamine Control Act of 1996, 
traditional manufacturers stopped selling larger strength products such 
as those containing a single active ingredient of 60 mg. of 
pseudoephedrine in bottle sizes. Traditional market retailers also 
stopped selling large count sizes of products containing List I 
chemicals. See id. at 7-9.
    Mr. Rubbins further testified that while traditional manufacturers 
were reducing the size and strength of their List I products, smaller 
manufacturers and distributors continued to market high strength 
products in high dosage counts such as 60 mg. single entity 
pseudoephedrine sold in bottles containing 60, 96 or 100 tablets. See 
id. at 7 & 9. Mr. Rubbins testified that these products ``pass through 
several layers of distribution'' and are now sold in such non-
traditional establishments as small convenience stores, gas stations, 
liquor stores, and head shops. Id. at 6. According to Mr. Rubbins, non-
traditional retailers ``tend to knowingly sell in large quantities to 
`smurfers,' '' who purchase the product on behalf of methamphetamine 
manufacturers. Id. at 7. Mr. Rubbins also testified that based on data 
obtained in lab seizures, he had concluded that DEA's enforcement 
efforts involving pseudoephedrine products may have caused 
methamphetamine traffickers to return to using combination ephedrine 
products. See id. at 10.
    The Government also submitted the declaration of Mr. Jonathan 
Robbin, the President and founder of Ricercar, Inc. Mr. Robbin's firm 
``specializes in the statistical analysis of demographic, economic, 
geographic and survey data for the purpose of locating, sizing and 
segmenting markets for a wide variety of consumer goods sold at 
retail.'' Gov. Exh. 9, at 1. Mr. Robbin has credibly testified as an 
expert witness on the market for ephedrine and pseudoephedrine products 
in numerous proceedings including Federal criminal prosecutions, see, 
e.g., United States v. Sdoulam, 398 F.3d 981, 989-91 (8th Cir. 2005), 
and DEA proceedings. See, e.g. D & S Sales, 71 FR 37607 (2006).
    In this proceeding, Mr. Robbin testified that based on his study of 
U.S. Economic Census Data, data collected by the National Association 
of Convenience Stores (NACS), and commercially available point of sale 
transaction data, he had found that convenience stores sell only a very 
small percentage of the market for non-prescription drugs. See Gov. 
Exh. 9, at 5-7. According to Mr. Robbin's analysis, 97 percent of all 
sales of non-prescription drugs occur in drug stores, supermarkets, 
large discount merchandisers, and electronic shopping/mail-order 
houses. Id. at 5. Mr. Robbin further testified that Economic Census 
Data indicate that sales of non-prescription drugs in convenience 
stores both selling and not selling gasoline account for only 2.2% of 
total sales of all convenience stores that handle these products.\1\ 
Id. at 5-6.
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    \1\ The ALJ found that Mr. Robbin ``stated that his analysis 
showed that over-the-counter drugs containing pseudoephedrine 
accounted for only 2.6 percent of all sales of health and beauty 
products in convenience stores and only 0.05 percent of such stores' 
total non-gasoline sales.'' ALJ at 9. The ALJ did not, however, cite 
the specific portion of the Robbin declaration that she based her 
finding on. My review of the Robbin declaration concludes that the 
figures do not refer to the percentage of pseudoephedrine sales, but 
rather the sale of all nonprescription drugs in convenience stores 
based on data compiled by the National Association of Convenience 
Stores. See Gov. Exh. 9, at 6.
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    Mr. Robbin testified that the normal expected retail sales of 
pseudoephedrine products in convenience stores ``may range between $0 
and $40 per month, with an average

[[Page 52162]]

of $21.60.'' Id. at 9. With respect to ephedrine products, Mr. Robbin 
further testified that the expected sales range of these products in a 
convenience store is ``between $0 and $25 per month, with an average of 
$12.58.'' Id. Mr. Robbin further testified that ``[a] sale of over $100 
a month (5 times expectation) would be expected to occur in random 
sampling about once in a million raised to the tenth power.'' \2\ Id. 
Based on NACS surveys indicating that the average gross margin on these 
products is about 40%, Mr. Robbin concluded that ``a convenience store 
may be expected to spend an average of about $12 per month acquiring an 
inventory of pseudoephedrine tablets at wholesale from a distributor or 
$7.50 per month stocking ephedrine tablets.'' Id.
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    \2\ While it is not entirely clear whether Mr. Robbin was 
discussing a sale of pseudoephedrine or ephedrine, his reference 
that the $100 amount was ``5 times expectation'' suggests that the 
statement pertains to pseudoephedrine. I thus find that the 
statement refers to pseudoephedrine sales.
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    Finally, Mr. Robbin rendered an opinion based on information in the 
DEA Diversion Investigator's (DI) report that Mr. Carroll had ``hope[d] 
to sell $100.00 worth of List I chemicals to each [retail] customer 
every month.'' Id. at 14. Mr. Robbin opined that this would ``translate 
into retail sales of $167 per month, over eight times normal 
expectation'' and that ``[s]uch an amount would be extraordinarily far 
beyond what could normally be expected to be sold to ordinary consumers 
by such stores.'' Id. at 15. He further concluded that ``all of these 
listed retailers are not participating in the traditional market for 
these products and could not sell $167 or more of them per month in 
ordinary commerce for their intended purpose as non-prescription 
drugs.'' Id. at 16.

The Pre-Registration Investigation

    In February 2003, a DEA Diversion Investigator (DI) visited 
Respondent at its proposed register location to conduct a pre-
registration investigation. The DI met with Mr. Carroll and interviewed 
him regarding Respondent's proposed business in List I chemicals. Mr. 
Carroll told the DI that he needed to distribute List I chemicals 
because his customers were asking for them and because the products had 
a high profit margin. See ALJ at 10. Mr. Carroll further told the DI 
that he expected to sell approximately $100 per month of List I 
chemicals per customer and that he expected List I chemicals to 
comprise twenty percent of his revenue and possibly more if he was able 
to increase his customer base. See id. With respect to the twenty 
percent figure, Mr. Carroll testified, however, that he had not done a 
market analysis and that the figure was just ``wishful thinking'' and 
had no basis. Tr. 158. With respect to the $100 per month per customer 
figure, ALJ found that Mr. Carroll testified that the amount included 
all of the medicine he sold and not just that containing List I 
chemicals. See ALJ Dec. at 12; see also Tr. at 182-83.
    The DI further testified that during the interview, Mr. Carroll 
informed him that he intended to sell both Mini Thins and Max Alert. 
The DI testified that both products contain 25 mg. of ephedrine and 200 
mg. of guaifenesin and that he had never seen these products in a 
traditional retailer. Tr. 16. The DI further testified that these 
products have been found at clandestine lab sites ``on many 
occasions.'' Id. at 57. Mr. Carroll also told the DI that he wanted to 
sell several nationally branded products such as Advil Cold & Sinus and 
Tylenol Sinus. See ALJ at 12. Mr. Carroll testified, however, that ``he 
had no objection to DEA placing restrictions on his ability to sell 
certain products.''Id.
    Mr. Carroll also testified that he had no connection to any illegal 
methamphetamine cooks. Tr. at 167. He also testified that to his 
knowledge, none of his customers were involved in the illegal 
production or distribution of methamphetamine. Id. at 167-68.
    During the investigation, Mr. Carroll gave the DI the name of his 
expected supplier. Following the on-site inspection, the DI contacted 
the supplier. The supplier told the DI that it had a minimum order 
requirement of 36 60-count bottles. This prompted the DI's concern 
because 60-count bottles are commonly found at clandestine lab sites. 
Mr. Carroll also gave the DI a list of his potential List I chemical 
customers. The DI contacted thirteen of them. Two of the customers 
stated that they did not intend to sell List I chemical products. 
Several of the other customers stated that while they would buy List I 
products from Respondent, they also had other suppliers. This also 
raised a concern because it indicated that a lot of product would be 
coming into these stores and suggested the possibility of diversion. On 
cross-examination, however, the DI testified that at least one of the 
customers stated that he would buy from whoever offered the best price. 
Tr. at 74. The record is unclear, however, as to whether the other 
stores that already had a List I chemical supplier told the DI that 
they would limit their purchases to the supplier that offered the best 
price.
    The DI also testified that Respondent proposed to store the List I 
chemicals in a room of an old mobile home. According to the DI, the 
room had ``a wooden door of not very heavy construction,'' with a 
single cylinder doorknob lock and no deadbolt. Id. at 21. Moreover, the 
room had ``regular glass-plate windows'' and did not have an alarm 
system. Id. at 22. Mr. Carroll testified, however, that he had replaced 
the mobile home's exterior door and that this door had a lock on it. 
Id. at 162. Mr. Carroll's testimony does not indicate what type of lock 
it is. See id. Mr. Carroll further testified that he was building a 
barn with an office and a refrigerated room in which he would store 
medicine. Id. at 161.
    The ALJ further found that the DI ``conceded that Respondent's 
facility minimally met DEA guidelines.'' ALJ Decision at 11. While the 
DI testified that the security ``was minimum, very minimum,'' he added 
that ``it was very questionable.'' Tr. at 20. I therefore do not accept 
the DI's testimony as conclusive proof that Respondent's facility met 
our guidelines.
    The DI further testified that Mr. Carroll indicated that he had no 
experience in the sale of List I chemicals. Id. at 19. Mr. Carroll's 
wife testified, however, that she sold these products in her bait shop 
at the retail level and that Mr. Carroll had run the store when she was 
tending to her daughter. Id. at 129-130. Mrs. Carroll further testified 
that she had observed Mr. Carroll handling these products while working 
in her bait shop, and that she had never observed anything improper in 
the way he had handled them. Id. at 130. She further testified that her 
husband was an honest, hardworking man, and ``would never do anything 
that would compromise the welfare of our family.'' Id.

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless I determine that the registration 
would be ``inconsistent with the public interest.'' In making this 
determination, Congress directed that I consider the following factors:

    (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.


[[Page 52163]]


    Id. ``These factors are considered in the disjunctive.'' Joy's 
Ideas, 70 FR 33195, 33197 (2005). I may rely on any one or a 
combination of factors, and may give each factor the weight I deem 
appropriate in determining whether an application for registration 
should be denied. See, e.g., David M. Starr, 71 FR 39367 (2006); Energy 
Outlet, 64 FR 14269 (1999). In this case, I conclude that factors one, 
four and five require the denial of Respondent's application.

Factor One--Maintenance of Effective Controls Against Diversion

    The ALJ acknowledged that Respondent's proposed location for 
storing List I products is inadequate. As the record demonstrates, the 
proposed location was a room in an old mobile home that contained two 
plate-glass windows, and had an entry door of insubstantial 
construction that was secured by only a single cylinder lock. See 21 
CFR 1309.71(b)(3) (requiring consideration of ``[t]he type of building 
construction comprising the facility and the general characteristics of 
the building''). Moreover, while Respondent testified that he had 
replaced the exterior door to the building, his testimony did not 
indicate what type of lock was installed in the door. Furthermore, the 
mobile home does not have an alarm system. See id. at 1309.71(b)(4). 
The proposed location clearly does not provide adequate security to 
protect List I chemicals from diversion through theft. See, e.g., David 
M. Starr, 71 FR 39367, 39368 (2006).
    The ALJ nonetheless concluded that because Mr. Carroll testified 
that he was building a new facility, the record does not establish 
whether or not Respondent would provide adequate security. See ALJ at 
15. I disagree--the Government did prove that Respondent's proposed 
registered location would not provide adequate security. The 
speculative possibility that Respondent would eventually construct a 
facility that meets DEA's standards does not refute the Government's 
evidence.
    Beyond that, the evaluation of an application requires significant 
agency resources including the employee travel time and inspection time 
necessary to conduct an on-site, pre-registration investigation. 
Moreover, applicants for any DEA registration should familiarize 
themselves with the regulations and other policies such as those 
contained in the Chemical Handlers Manual before applying.
    In this case, approximately six months elapsed from the date of the 
pre-registration investigation until the issuance of the Show Cause 
Order. Yet at no time during this period did Respondent notify DEA that 
he was planning on building a new facility. It was only after service 
of the Show Cause Order--and apparently at the hearing--that Respondent 
stated his intention to build a new facility.
    Because there must be some finality in this process, I decline to 
allow applicants to challenge a show cause order's allegation that 
their proposed location lacks proper security by asserting at a hearing 
that they plan improvements. Once a show cause order is issued, an 
applicant can challenge an allegation that the security of the proposed 
location is inadequate only by showing that the facility met DEA 
guidelines at the time of the on-site inspection, or that it had 
corrected any security deficiencies so as to be in compliance and had 
submitted adequate proof of its compliance to DEA prior to issuance of 
the order.\3\
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    \3\ In the event that a proposed location's lack of security was 
the only reason that the application was denied, an applicant can 
always reapply after the necessary improvements have been completed.
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    I thus conclude that Respondent does not have effective controls 
against diversion. This factor alone supports a finding that 
Respondent's registration would be inconsistent with the public 
interest.

Factors Two--Compliance With Applicable Laws

    The ALJ concluded that there was ``no evidence or indication that 
Respondent has not complied with applicable Federal, State, and local 
laws.'' ALJ at 16. I agree and conclude that this factor weighs in 
favor of a finding that Respondent's registration would not be 
inconsistent with the public interest.

Factor Three--The Applicant's Prior Record of Relevant Criminal 
Convictions

    The ALJ further found that there was no evidence that Mr. Carroll 
has a prior criminal conviction for a drug-related offense. Mr. 
Carroll, however, admitted on the application that he had previously 
been convicted of a crime relating to controlled substances or 
chemicals. See Gov. Exh. 1, at 1. On the application, Mr. Carroll 
explained that he ``had a possession charge in 1980,'' but that he had 
not ``had a problem since.'' Id. at 2. The Government offered no 
evidence to the contrary. In light of the age of the conviction, I 
conclude that it is not probative in assessing whether Respondent's 
registration would be inconsistent with the public interest. I thus 
conclude that this factor does not bar registration.

Factor Four--Past Experience of the Applicant in the Distribution of 
Chemicals

    The ALJ found that Mr. Carroll had no prior experience distributing 
List I chemicals. I agree.
    I further acknowledge the testimony that Mr. Carroll had sold List 
I products while working in his wife's store. I do not consider this to 
be relevant experience. The regulatory requirements applicable to List 
I chemical distributors are numerous and complex. See 21 CFR Pts. 1309 
& 1310. Moreover, retail distributors of ephedrine and pseudoephedrine 
were generally exempt from the recordkeeping and reporting 
requirements.\4\ Furthermore, Mr. Carroll does not claim that his 
experience working as a retail clerk required him to perform any of the 
recordkeeping and reporting requirements applicable to a non-retail 
distributor.
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    \4\ This discussion reflects the regulatory landscape pre-dating 
the Combat Methamphetamine Epidemic Act of 2005. Under provisions of 
the Combat Meth. Act that become effective on September 30, 2006, 
retail distributors are required to maintain a logbook which records 
the name and address of each purchaser of pseudoephedrine or 
ephedrine products, the date and time of the sale, the product name 
and the quantity.
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    DEA has recognized that an applicant's lack of experience in 
distributing List I chemicals creates a greater risk of diversion and 
thus weighs heavily against the granting of an application. See Starr, 
71 FR at 39368; Jay Enterprises, 70 FR 24620, 24621 (2005); ANM 
Wholesale, 69 FR 11652, 11653 (2004). Respondent's lack of relevant 
experience thus weighs against granting the application.

Factor Five--Other Factors That Are Relevant To and Consistent With 
Public Health and Safety

    Respondent argues that the sale of List I chemical products is 
legal activity and that these products are sold ``not only in drug 
stores and supermarkets, but in the very same mom and pop stores to 
which [it] intends to sell them.'' Resp. Proposed Findings at 3. 
Respondent further argues that the Government has not shown any link 
between itself and illicit manufacturers of methamphetamine. See id.
    I acknowledge Respondent's contention that the sale of List I 
chemical products is a legal activity and that Congress has not 
prohibited non-traditional retailers from selling these products. 
Numerous DEA cases recognize, however, that the sale by non-traditional 
retailers of List I chemical products containing ephedrine and 
pseudoephedrine is an area of particular concern in preventing

[[Page 52164]]

diversion of these products into the illicit manufacture of 
methamphetamine. See Joey Enterprises, 70 FR 76866, 76867 (2005). As 
Joey Enterprises explains, ``[w]hile there are no specific prohibitions 
under the Controlled Substances Act regarding the sale of listed 
chemical products to [gas stations and convenience stores], DEA has 
nevertheless found that [these entities] constitute sources for the 
diversion of listed chemical products.'' Id. See also TNT Distributors, 
70 FR 12729, 12730 (2005) (special agent testified that ``80 to 90 
percent of ephedrine and pseudoephedrine being used [in Tennessee] to 
manufacture methamphetamine was being obtained from convenience 
stores''); OTC Distribution Co., 68 FR 70538, 70541 (2003) (noting 
``over 20 different seizures of [gray market distributor's] 
pseudoephedrine product at clandestine sites,'' and that in an eight 
month period distributor's product ``was seized at clandestine 
laboratories in eight states, with over 2 million dosage units seized 
in Oklahoma alone.''); MDI Pharmaceuticals, 68 FR 4233, 4236 (2003) 
(finding that ``pseudoephedrine products distributed by [gray market 
distributor] have been uncovered at numerous clandestine 
methamphetamine settings throughout the United States and/or discovered 
in the possession of individuals apparently involved in the illicit 
manufacture of methamphetamine'').
    Moreover, clandestine lab seizures have frequently found high-
strength, high count List I chemical products, thus indicating that 
these are the preferred products for illicit methamphetamine 
manufacturers. See OTC Distribution, 68 FR at 70541, Shani 
Distributors, 68 FR 62324, 62325 (2003); MDI Pharmaceuticals, 68 FR at 
4236. Respondent proposed to sell similar high strength, high count 
products. See Xtreme Enterprises, 67 FR 76197, 76195 (2002); Tr. at 57 
(special agent testified that Mini Thins and Max Alert bottles have 
been found at clandestine lab sites ``on many occasions'').
    Moreover, all of Respondent's proposed customers participate in the 
non-traditional market for ephedrine and pseudoephedrine products.\5\
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    \5\ I acknowledge Respondent's contention that List I chemical 
products are sold in ``the very same mom and pop stores to which 
[it] intends to sell them.'' Resp. Proposed Findings at 3. However, 
the purpose of this proceeding is to determine whether granting 
Respondent's application to be a distributor would be consistent 
with the public interest. In short, that other firms have 
established their qualifications to distribute List I chemical 
products to non-traditional retailers is not relevant in assessing 
Respondent's application.
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    DEA final orders recognize that there is a substantial risk of 
diversion of List I chemicals into the illicit manufacture of 
methamphetamine when these products are sold by non-traditional 
retailers. See, e.g., Joy's Ideas, 70 FR at 33199 (finding that the 
risk of diversion was ``real, substantial and compelling''); Jay 
Enterprises, 70 FR at 24621 (noting ``heightened risk of diversion'' 
should application be granted); Xtreme Enterprises, 67 FR at 76197. 
Under DEA precedents, an applicant's proposal to sell into the non-
traditional market weighs heavily against the granting of a 
registration under factor five. So too here.\6\
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    \6\ I do not rely on the Government's expert testimony that 
Respondent's expected sales could not occur in ordinary commerce. 
The expert testimony was not based on actual sales figures. See, 
e.g., D & S Sales, 71 FR at 37611. Rather, it was an estimate, and 
there is no evidence establishing that Mr. Carroll discussed with 
his customers how much product they would purchase from Respondent. 
Moreover, the ALJ did not resolve the factual dispute as to whether 
the estimate included only sales of List I chemicals, or of all the 
OTC medicines Respondent intended to sell. Because our precedents do 
not require an evaluation of an applicant's estimated sales level to 
justify denial of an application, I need not resolve this factual 
question. In accordance with D & S Sales, the use of expert 
testimony showing that a registrant's actual sales greatly exceeded 
legitimate demand remains a valid means of proving diversion.
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    I also reject Respondent's contention that it entitled to a 
registration because ``[t]he government has established no link between 
[it] and the small illicit laboratories that manufacture 
methamphetamine.'' Resp. Proposed Findings at 3. Under the public 
interest standard of section 823(h), the Government is not required to 
prove that an applicant (or one of the stores the applicant intends to 
sell to) is linked to illicit meth. manufacturers in order to sustain a 
denial of an application or revoke a registration. Rather, the statute 
directs that I consider a variety of factors; an applicant's lack of a 
direct link to illegal drug distribution is just one of several factors 
to be considered in determining the public interest. See 21 U.S.C. 
823(h).
    Because of the methamphetamine epidemic's devastating effects, DEA 
has repeatedly denied an application when an applicant proposed to sell 
into the non-traditional market and analysis of one of the other 
statutory factors supports the conclusion that granting the application 
would create an unacceptable risk of diversion. Thus, in Xtreme 
Enterprises, my predecessor denied an application observing that 
respondent's ``lack of criminal record, compliance with the law and 
willingness to upgrade her security system are far outweighed by her 
lack of experience with selling List I chemicals and the fact that she 
intends to sell ephedrine almost exclusively in the gray market.'' 67 
FR at 76197. More recently, I denied an application observing that the 
respondent'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.'' Jay Enterprises, 70 FR at 24621. 
Accord Starr, 71 FR at 39368-69; Prachi Enterprises, 69 FR 69407, 69409 
(2004).
    I further note that each of these cases was decided before the 
recent enactment of the Combat Methamphetamine Epidemic Act of 2005. 
See USA Patriot Improvement and Reauthorization Act of 2005, Pub. L. 
109-177, Tit. VII, 120 Stat.192, 256-275 (2006). I acknowledge that in 
the course of considering the Act, Congress rejected proposals to 
schedule pseudoephedrine products as a controlled substance, and thus 
prohibit their sale by non-traditional retailers. See, e.g. H.R. 314, 
109th Cong. Sec.  104 (2005). Congress did not, however, overturn DEA 
precedents interpreting the public interest standard of 21 U.S.C. 
823(h) as authorizing the denial of an application to distribute List I 
chemicals on grounds similar to those established by the record in this 
case. Cf. Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 846 
(1986) (When Congress revisits a statute, its ``failure to revise or 
repeal the agency's interpretation is persuasive evidence that the 
interpretation is the one intended by Congress.'') (internal quotations 
and other citation omitted).
    Here, the factors that support denial of the application outweigh 
those that support granting it. Respondent's proposed security measures 
are plainly inadequate and are thus grounds alone to deny the 
application. Moreover, Respondent's owner lacks relevant experience in 
the distribution of List I chemicals and proposes to sell to non-
traditional retailers, a market in which the risk of diversion is 
substantial. I thus conclude that granting Respondent's application 
would be ``inconsistent with the public interest.'' 21 U.S.C. 823(h).

Order

    Accordingly, pursuant to the authority vested in me by 21 U.S.C. 
823(h), and 28 CFR 0.100(b) and 0.104, I hereby order that the 
previously submitted application of Tri-County Bait Distributors for a 
DEA Certificate of Registration as a distributor of List I

[[Page 52165]]

chemicals be, and it hereby is, denied. This order is effective October 
2, 2006.

    Dated: August 22, 2006.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E6-14524 Filed 8-31-06; 8:45 am]
BILLING CODE 4410-09-P