Sinbad Distributing; Denial of Application

On or about July 6, 2001, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration (DEA), issued an Order to Show Cause (OTSC) by certified mail to Sinbad Distributing (Sinbad), located in Las Vegas, Nevada, notifying it of an opportunity to show cause as to why the DEA should not deny its application, dated April 10, 2001, for a DEA Certificate of Registration as a distributor of the List I chemicals ephedrine, pseudoephedrine, and phenylpropanolamine, pursuant to 21 U.S.C.. 823(h), as being inconsistent with the public interest. The order also notified Sinbad that, should no request for hearing be filed within 30 days, the right to a hearing would be waived.

The OTSC was received July 16, 2001, as indicated by the signed postal receipt. Since that time, no response has been received from the applicant nor any person purporting to represent the applicant. Therefore, the Administrator of the DEA, finding that (1) thirty days having passed since receipt of the Order to Show Cause, and (2) no request for a hearing having been received, concludes that Sinbad is deemed to have waived its right to a hearing. After considering relevant material from the investigative file in this matter, the Administrator now enters his final order without a hearing pursuant to 21 CFR 1301.43(d) and (e) and 1301.46.

The Administrator finds as follows. List I chemicals are chemicals 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, ephedrine, and phenylpropanolamine are List I chemicals that are commonly used to illegally manufacture methamphetamine, a Schedule II controlled substance. Methamphetamine is an extremely potent central nervous system stimulant, and its abuse is a growing problem in the United States.

The Administrator finds that on April 10, 2001, an application was received by the DEA Chemical Operations Registration section on behalf of Sinbad for DEA registration as a distributor of the List I chemicals pseudoephedrine, phenlypropanolamine, and ephedrine.

During the August 18, 2001, pre-registration investigation of Sinbad, DEA investigators learned that Sinbad is a wholesale grocery distributorship with no prior experience in handling List I chemical products. The DEA investigation further revealed Sinbad distributes its products almost exclusively to liquor stores, mini marts, and other convenience stores in Las Vegas, Clark County, and Henderson, Nevada.

DEA investigators requested information concerning Sinbad customers who previously have requested pseudoephedrine products. The DEA investigation revealed that most of Sinbad's potential pseudoephedrine customers have in the past obtained excessive quantities of pseudoephedrine products from multiple sources.

In response to requests by DEA investigators, Sinbad also provided a list of potential suppliers. A number of these suppliers have received Warning Letters from DEA documenting that the products they distribute have been found in illicit settings.

Pursuant to 21 U.S.C. 823(h), the Administrator may deny an application for a DEA Certificate of Registration if he determines that granting the registration would be inconsistent with the public interest. Section 823(h) requires the following factors be considered:

(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.

Like 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 Administrator may relay on any one or combination of factors and may give each factor the weight he deems appropriate in determining whether a registration should be revoked or an application for registration be denied. See, e.g. Energy Outlet, 64 FR 14,269 (1999). See also Henry J. Schwartz, Jr., M.D., 54 FR 16,422 (1989).

Regarding factor one, the maintenance of effective controls against the diversion of listed chemicals, the Administrator finds that the during the preregistration inspection of the applicant conducted August 18, 2000, Sinbad did not demonstrate that it possessed adequate security and recordkeeping arrangements to prevent the diversion of List I chemical products. Sinbad's owner stated to DEA investigators that he did not plant to segregate List I chemical products in a separate, secure enclosure, but that such products would be stored on open shelves along with other products. The investigation thus revealed that the applicant was unprepared to address the responsibilities that a DEA registration would entail.

Regarding factor two, the applicant's compliance with applicable law, the Administrator finds that there no evidence that the applicant has a record for violations of applicable Federal, State, or local law.

Regarding factor three, there is no evidence that the applicant has any record of convictions related to controlled substances or to chemicals controlled under Federal or State law.

Regarding factor four, the applicant's past experience in the distribution of chemicals, the Administrator finds that the DEA investigation revealed that the applicant has no experience in the handling of List I chemicals.

Regarding factor five, other factors relevant to and consistent with the public safety, the Administrator finds that past DEA investigations and experience has shown that the primary source of diversion of List I chemicals in the areas in which Sinbad seeks to distribute are mini marts and other types of convenience stores. The DEA investigation in this case revealed that Sinbad's customer base is primarily these same types of stores. Sinbad's proposed customer list includes numerous stores of record with DEA as having excessive ordering histories.

One such proposed customer, a mini mart located in Las Vegas, Nevada, on April 17, 2000, ordered one case (144 bottles) of 60 mg. pseudoephedrine tablets in 120 count bottles from a distributor in Michigan. Four days later, the proposed customer ordered another case (144 bottles) of the exact same product from a distributor located in Las Vegas, Nevada. Six days later, a third case was ordered. During this ten day period, approximately 51,840 dosage units of 60 mg. pseudoephedrine tablets were received and distributed. Between March 22 and August 8, 2000, this proposed customer ordered and distributed approximately 200,000 pseudoephedrine 60 mg. tablets.

Two other proposed customers, both mini marts located in Las Vegas, between them ordered and distributed about 629,600 dosage units of pseudoephedrine during an approximately 18 month period. A third proposed customer was indicted of four counts of illegal distribution of a List I chemical with knowledge it would be used to manufacture a controlled substance. The owner later pleaded guilty to one count of the indictment.

The DEA investigation also revealed information concerning potential suppliers named by Sinbad. Three of the proposed suppliers of List I chemicals have each received numerous Warning Letters from DEA. These letters notified the above firms that their distribution practices have contributed to the diversion of List I chemical products to the illicit manufacture of methamphetamine. Among these suppliers, two had received 15 Warning Letters between them, and the third had surrendered its DEA List I chemical registration following the service of a criminal search warrant. During the search, approximately 1736 cases of pseudoephedrine and $385,000 were seized. These three suppliers additionally were responsible for distributing 11,303,160 dosage units of 60 mg. pseudoephedrine products during an approximately 18 month period. This amount of pseudoephedrine is theoretically capable of producing approximately 1370 pounds of methamphetamine.

Therefore, for the above-stated reasons, the Administrator concludes that it would be inconsistent with the public interest to grant the application of Sinbad Distributing.

Accordingly, the Administrator of the Drug Enforcement Administration, pursuant to the authority vested in him by 21 U.S.C. 823 and 28 CFR 0.100(b) and 0.104, hereby orders that the application for a DEA Certificate of Registration submitted by Sinbad Distributing be denied. This order is effective April 5, 2002.