Value Wholesale Denial of Registration

On September 8, 2003, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration (DEA), issued an Order to Show Cause to Value Wholesale (Value) proposing to deny its November 6, 2001, application for DEA Certificate of Registration as a distributor of list I chemicals. The Order to Show Cause alleged that granting Value'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 Value 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 Value at its proposed registered location at 15188 Eight Mile Road, Oak Park, Michigan 48237. It was received on September 16, 2003, and DEA has not received a request for a hearing or any other reply from Value 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 Value has waived its hearing right. See Aqui Enterprises, 67 FR 12576 (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 (2003). 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. Phenhylpropanolamine, 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 that an application dated November 6, 2001, was submitted on behalf of Value and signed by its President and only officer, Mr. John Loussia (Mr. Loussia). Value sought registration as a distributor of multiple list I chemicals, including pseudoephedrine (8112) and phenylpropanolamine (1225). There is no evidence in the investigative file that Value has sought to modify its pending application with regard to those two chemicals.

In January 1999, Value originally applied for DEA registration as a distributor of list I chemicals and during a pre-registration investigation, it was determined the company had been buying and selling list I chemical products for a number of years prior to filing this application for registration. However, on February 5, 1999, that application was approved and Value issued DEA Certificate of Registration 004000VHY.

On October 31, 2001, during the course of a regularly scheduled cyclic investigation, it was discovered Value's registration had expired, effective May 31, 2000, without any application for renewal having been filed. Nevertheless, investigators found that the firm had continued to order and sell list I chemical products after its registration had expired. Investigators also discovered Value had not been maintaining adequate or complete records of customer addresses as required by 21 CFR 1310.06. A DEA letter of admonition was issued the company and in reply, Mr. Loussia advised he would be submitting the instant application for registration and not be carrying list I chemical products until its approval.

In connection with the pending application, an on-site pre-registration investigation was conducted in March 2002. Mr. Loussia advised investigators that Value was a full-line wholesaler/distributor of groceries to local food stores in the Detroit metropolitan area and its intention was to sell name brand cough and cold products containing list I chemicals. However, Value's application included over 21 chemical codes, many of which are solely used for commercial or industrial purposes. After being briefed by investigators, Mr. Loussia requested that numerous chemical codes be deleted from Value's application.

The company proposed to primarily sell over-the counter products on a cash and carry basis to walk-in customers, including businesses ranging from gas stations, small grocery stores, dollar stores, party stores and meat markets. They would pay in cash or by check and pick up products directly from Value's facility. Mr. Loussia provided a list of proposed customers, estimating that chemical products would be sold to about 50 to 60 customers in the Detroit area and represented less than 1% of Value's total business. When investigators attempted to verify several of these proposed customers, it was determined they no longer existed.

The Deputy Administrator finds that during the year 2000, DEA suspended the registrations of three Detroit area listed chemical distributors who were engaged in diversion of listed chemical products by purporting to distribute them to phony distributors and non-existent retail customers. Additionally, DEA suspended the registration of a Florida distributor who was purporting to sell listed chemical products to Detroit area retailers, after DEA was unable to determine that retailers were actually receiving the product.

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 14269 (1999). See also, Henry J. Schwartz, Jr., M.D., 54 FR 16422 (1989).

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

With respect to factor one, maintenance of effective controls against diversion, while physical security of list I chemical products is a focus of 21 CFR 1309.71, among the factors considered under the general security requirements of 21 CFR 1309.71, is “[t]he adequacy of the registrant's or applicant's system for monitoring the receipt, distribution and disposition of list I chemicals in its operations.” 21 CFR 1309.71(b)(8). Prior agency rulings have applied a more expansive view of factor one then mere physical security. See, e.g., OTC Distribution Company, 68 FR 70538 (2003) (failure to maintain adequate administrative records and controls to permit a precise audit of list I chemical products and company's inability or unwillingness to fully comply with record keeping and report obligations under an MOA considered adverse under factor one). See also, Alfred Khalily, Inc., 64 FR 31289 (1999) and NVE Pharmaceuticals, Inc., 64 FR 59215 (1999) (failure to identify a party to a transaction or engaging in transactions with non-registered entities fell under factor one); State Petroleum, Inc., 67 FR 9994 (2002); Hadid International, Inc., 67 FR 10230 (2002) and Aqui Enterprises, 67 FR 12576 (2002) (recordkeeping inadequate to track sales and customers within factor one). The Deputy Administrator finds that factor one is adversely implicated to the extent that Value has previously failed to maintain records, as required by 21 CFR 1310.06.

With regard to factor two, compliance with applicable Federal, State and local law, the Deputy Administrator finds that prior to its initial application for DEA registration and then subsequent to that registration's expiration, Value illegally acquired listed chemical products while not registered to do so. It then distributed those products in violation of the criminal provisions of 21 U.S.C. 841, 842 and 843. Value also failed to comply with applicable laws and regulations requiring adequate and complete records of listed chemical transactions.

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. Loussia's lack of knowledge or inability to comply with the laws and regulations governing handling of list I chemical products. Before applying for initial registration in 1999, for several years Value had been acquiring list I chemical products from certain distributors and reselling those products. Mr. Loussia claimed he was unaware of the registration requirement until Value was turned down as a customer by a major distributor, based on Value's lack of a DEA registration. Only then did Value submit the 1999 application for registration which was ultimately granted. The company then allowed that registration to expire but continued to acquire and distribute list I chemical products. It was either unaware of the need to renew its registration or purposely failed to do so. In addition, the Deputy Administrator finds factor four relevant to Mr. Loussia's apparent unfamiliarity with listed chemical products, as evidenced by his inclusion in Value's application of multiple products having only industrial and commercial uses.

With respect to factor five, other factors relevant to and consistent with the public safety, the Deputy Administrator finds this factor relevant to Value's proposal to distribute listed chemical products to gas stations, small retail markets and convenience stores. 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 that gas stations and convenience stores constitute sources for the diversion of listed chemical products See, e.g., ANM Wholesale, 69 FR 11652 (2004); Xtreme Enterprises, Inc., 67 FR 76195 (2002); Sinbad Distributing, 67 FR 10232 (2002); K.V.M. Enterprises, 67 FR 70968 (2002).

Finally, as noted above, there is no evidence in the investigative file that Value ever sought to modify its pending application with respect to the listed chemical product phenylpropanolamine. In light of this development, the Deputy Administrator also finds factor five relevant to Value's request to distribute phenylpropanolamine, and the apparent lack of safety associated with the use of that product. DEA has previously determined that an applicant's request to distribute phenylpropanolamine constitutes a ground under factor five for denial of an application for registration. See Direct Wholesale, 69 FR 11654 (2004); ANM Wholesale, supra, 69 FR 11652; Shani Distributors, 68 FR 62324 (2003).

Based on the foregoing, the Deputy Administrator concludes that granting the pending application of Value would be inconsistent with the public interest. In sum, by its past conduct, Value has displayed a continuing history of illegal activity and an inability to discharge the responsibilities of a registrant.

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 Value Wholesale be, and it hereby is, denied. This order is effective November 1, 2004.