K & Z Enterprises, Inc.; Denial of Application

On December 13, 2002, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration (DEA), issued an Order to Show Cause to K & Z Enterprises, Incorporated, d/b/a/ Georgia Wholesale (Respondent), proposing to deny its application executed on June 15, 2001, for DEA Certificate of Registration as a distributor of list I chemicals. The Order to Show Cause alleged that granting the application of the Respondent would be inconsistent with the public interest as that term is used in 21 U.S.C. 823(h) and 824(a).

The Order to Show Cause was delivered to the Respondent by certified mail, and on January 22, 2003, the Respondent, through its president Kamar Hamrani (Mr. Hamrani), submitted a written response essentially addressing the allegation in the Order to Show Cause. However, there was no mention of any request for hearing in the Respondent's letter.

On February 10, 2003, the presiding Administrative Law Judge Gail A. Randall (Judge Randall) issued an Order for Prehearing Statements, directing the respective parties to file pre-hearing statements. However, in lieu of filing a pre-hearing statement, counsel for DEA filed Government's Request for Finding and Motion for Summary Disposition on February 12, 2003. The Government argued, inter alia, that there was no language in any of the Respondent's written submissions where a hearing was requested, as required by 21 CFR 1309.53. The Government therefore requested that Judge Randall make a finding that the Respondent had waived its right to a hearing and the contents of the Respondent's written submissions be submitted to the Deputy Administrator for determination as to whether or not a registration should be issued.

By Order dated February 19, 2003, Judge Randall afforded the Respondent an opportunity to respond to the Government's motion. The Respondent was directed to file its response by March 12, 2003, however, no such response was ever submitted. Judge Randall found that a hearing had not been requested in this proceeding and on March 18, 2003, issued an Order Terminating Proceedings. Following the termination of proceedings, Judge Randall transmitted the matter to the Deputy Administrator for issuance of a final order.

In light of the above, the Deputy Administrator similarly finds that the Respondent has waived its hearing right. Aqui Enterprises, 67 FR 12576 (2002). After considering relevant material from the investigative file in this matter, the Deputy Administrator now enters her final order without a hearing pursuant to 21 CFR 1309.53(c) and (d) and 1316.67 (2003).

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. Phenylpropanolamine, also a list I chemical, is presently a legitimately manufactured and distributed product used to provide relief of the symptoms resulting from irritation of the sinus, nasal, and upper respiratory tract tissues, and is also used for weight control. Phenylpropanolamine is also a precursor chemical used in the illicit manufacture of methamphetamine and amphetamine. Methamphetamine is an extremely potent central nervous system stimulant, and its abuse is an ongoing public health concern in the United States.

The Deputy Administrator's review of the investigative file reveals the DEA received an application dated June 15, 2001, from the Respondent. The Respondent's address of record is a location in Doraville, Georgia. The application was submitted on behalf of the Respondent by Mr. Hamrani. The Respondent initially sought DEA registration as a distributor of the list I chemicals ephedrine, pseudoephedrine, and phenylpropanolamine. However, Mr. Hamrani subsequently informed DEA in writing of his desire to withdraw phenylpropanolamine from his company's registration application.

On October 27, 2001, DEA diversion investigators conducted a pre-registration inspection of the Respondent's premises, where they met with Mr. Hamrani. During the inspection, investigators advised Mr. Hamrani of regulatory requirements and problems surrounding the diversion of list I chemicals. The investigators also reviewed security, recordkeeping, and distribution procedures with Mr. Hamrani and provided him with appropriate materials regarding DEA requirements for handlers of listed chemicals.

DEA's inspection revealed that Respondent had become incorporated on March 9, 2001. Mr. Hamrani informed DEA investors that his previous business experience was as a manager/owner of gasoline stations with attached convenience stores. Respondent's primary business consists of wholesale distribution of merchandise to retail convenience stores and jobbers, with a product line that included soda and juice drinks, automotive oil, and various snacks. Mr. Hamrani told DEA investigators of his desire to sell to his customers two boxes of 24 bottles and two boxes of 24 blister paks of “Heads-Up,” “Max Brand,” and “Mini-Two-Way” ephedrine products, as well as nationally recognized pseudoephedrine brand products. Mr. Hamrani estimated that the sale of list I chemical products by his firm would constitute less than one percent of total sales. DEA also requested, and Mr. Hamrani provided, a list of Respondent's proposed customers.

From March through June 2002, DEA investigators conducted verifications of eighteen establishments from the list of prospective customers provided by the Respondent. These customers were located in the vicinity of Atlanta and Lawrenceville, Georgia and were comprised primarily of convenience stores and gas station's. DEA's investigation revealed that four of the purported customers did not exist. Two retailers refused to cooperate with DEA's investigation and another purported customer did not sell over-the-counter products of any kind. Several of the gas station's customers informed DEA personnel that while they purchased beverage and other non-drug products from the Respondent, they had no agreement to purchase over-the-counter medication products from Respondent.

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 as determined under that section. 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 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 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 Fed. Reg. 16422 (1989).

The Deputy Administrator finds factors four and five relevant to the Respondent's pending registration application.

With respect to factor four, the applicant's past experience in the distribution of chemicals, the Deputy Administrator finds this factor relevant to Mr. Hamrani's apparent lack of experience in the handling of list I chemical products. The DEA investigative file shows that the Respondent is a retailer of general merchandise and before that, Mr. Hamrani operated gasoline stations with attached convenience stores. Mr. Hamrani's past history as an entrepreneur suggests that he has not had any experience in handling listed chemical products. In prior DEA decisions, the lack of experience in the handling of list I chemicals was a factor in a determination to deny a pending application for DEA registration. See, Matthew D. Graham, 67 FR 10229 (2002); Xtreme Enterprises, Inc. 67 FR 76195 (2002). Therefore, this factor similarly weighs against the granting of the Respondent's pending application.

With respect to factor five, other factors relevant to and consistent with the public safety, the Deputy Administrator finds this factor relevant to the Respondent's proposal to distribute listed chemical products primarily to convenience stores and gas stations. While there are no specific prohibitions under the Controlled Substance Act regarding the sale of listed chemical products to these entities, DEA has nevertheless found that business establishments such as gas stations and convenience stores constitute sources for the diversion of listed chemical products. See e.g., Sinbad Distributing, 67 FR 10232, 10233 (2002); K.V.M. Enterprises, 67 FR 70968 (2002) (denial of application based in part upon information developed by DEA that the applicant proposed to sell listed chemicals to gas stations, and the fact that these establishments in turn have sold listed chemical products to individuals engaged in the illicit manufacture of methamphetamine); Xtreme Enterprises, Inc., supra.

The Deputy Administrator also finds factor five relevant to the results of DEA's verification of the Respondent's proposed customers. Among the Respondent's potential customers were four establishments no longer in existence; two that refused to cooperate with DEA investigator; one that did not sell over-the-counter products of any kind; and several that had no standing agreement to purchase any over-the-counter medication products from Respondent. DEA has previously found that incomplete customer information, or questionable conduct by customers are grounds to deny an application to distribute list I chemicals. Island Wholesale, 68 FR 17406 (2003); Shani Distributors, 68 FR 62324 (2003).

Accordingly, the Deputy Administrator of the Drug Enforcement Administration, pursuant to the authority vested in her by 21 U.S.C. 823 and 28 CFR 0.100(b) and 0.104, hereby orders that the pending application for DEA Certificate of Registration, previously submitted by K & Z Enterprises, Incorporated be, and it hereby is, denied. This order is effective September 20, 2004.