Implementation of the Comprehensive Methamphetamine Control Act of 1996; Possession of List I Chemicals Definitions, Record Retention, and Temporary Exemption From Chemical Registration for Distributors of Combination Ephedrine Products

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Parts 1309, 1310 and 1313

[DEA Number 154F]

RIN 1117-AA42

Implementation of the Comprehensive Methamphetamine Control Act

of 1996; Possession of List I Chemicals Definitions, Record Retention,

and Temporary Exemption From Chemical Registration for Distributors of

Combination Ephedrine Products

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Final rule.

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SUMMARY: DEA is finalizing the Interim Rule, which included a request

for comment, published in the Federal Register on February 10, 1997,

(62 FR 5914). The Interim Rule amended the regulations to incorporate

certain amendments to the Controlled Substances Act (CSA) made by the

Comprehensive Methamphetamine Control Act of 1996 (MCA) and to provide

temporary exemption from registration for persons who distribute

combination ephedrine products. Comments were received regarding

industry interpretation of certain requirements of both the CSA and the

MCA. This notice responds to those comments and clarifies the

requirements of the CSA and MCA with respect to the distribution of

combination ephedrine products.

EFFECTIVE DATE: October 7, 1997.

FOR FURTHER INFORMATION CONTACT: G. Thomas Gitchel, Chief, Liaison and

Policy Section, Office of Diversion Control, Drug Enforcement

Administration, Washington, D.C. 20537, Telephone (202) 307-7297.

SUPPLEMENTARY INFORMATION: On February 10, 1997, DEA published an

interim rule, with request for comment, in the Federal Register (62 FR

5914) to implement certain regulatory changes mandated by the MCA and

to provide temporary exemption from registration pending promulgation

of final regulations to implement the MCA.

Five comments were received regarding the interim rule. Three

separate issues were raised in the comments:

(1) Two comments expressed support for the temporary exemptions and

urged that the exemption from registration for retail distributors as

described in the MCA be made permanent. DEA agrees and will make the

exemption permanent.

(2) Three comments asserted that DEA's interpretation of the MCA is

incorrect and that the registration requirement does not apply to

wholesale distributors that engage in only sub-threshold transactions

of combination ephedrine products.

Specifically, the commentors assert that while Section 302(a)(1) of

the CSA (21 U.S.C. 822(a)(1)) requires that any person who distributes

a List I chemical must register, that requirement is tempered by

Section 303(h) of the CSA (21 U.S.C. 823(h)), which provides, in part,

that registration shall not be required for the distribution of a drug

product that is exempted under section 102(39)(A)(iv). Section 102(39)

of the CSA (21 U.S.C. 802(39)) defines the term ``regulated

transaction''. The definition provides in paragraph (A)(iv) that a

transaction in a listed chemical contained in a drug product that may

be marketed or distributed under the Food, Drug, and Cosmetic Act (FDC

Act) is not a regulated transaction, unless the drug contains

ephedrine, pseudoephedrine, or phenylpropanolamine, and the quantity of

ephedrine, pseudoephedrine, or phenylpropanolamine equals or exceeds

the threshold established for the chemical. These provisions are echoed

in DEA's regulations; Title 21, Code of Federal Regulations (CFR),

Section 1309.21(a) requires registration for the distribution of a List

I chemical, other than a List I chemical contained in a drug product

that is exempted under 21 CFR section 1310.01(f)(1)(iv). The commentors

assert the definition of regulated transaction provides that a

[[Page 52254]]

drug product remains exempt if the amount of List I chemical involved

in the transaction is less than the threshold established for that

chemical. Under the circumstances, the commentors argue that persons

who engage only in sub-threshold distributions of List I chemicals

contained in drug products are exempt from the registration

requirement.

The commentors analysis of the referenced portions of the law fails

to acknowledge certain points of law that must be considered in

determining who must register.

First, the MCA amends existing language to remove the exemption for

combination ephedrine products. The specific language that is subject

to the commentors analysis (21 U.S.C. 802(39)(A)(iv) (I) and (II) and

21 U.S.C. 823(h)) was added to the CSA by the Domestic Chemical

Diversion Control Act of 1993 (DCDCA).

A review of the legislative history of the DCDCA reveals that, as

described in a letter of support for the DCDCA from the then Acting

Administrator of DEA to the Chairman of the House Committee on Energy

and Commerce, the registration system established under that act was

``* * * precisely patterned after the system which we have successfully

employed for handlers of controlled substances since 1971.'' (U.S.

Congressional and Administrative News, 103rd Congress, Vol. 4, Page

2986) The registration system for handlers of controlled substances,

while providing for the exemption of certain products that contain

controlled substances, does not consider the quantity involved in a

distribution when determining whether registration is required; either

the product is exempt or non-exempt. Thus, 21 U.S.C. 823(h) provides

that the exemption from registration applies to exempted products, and

not, as the commentor apparently reads it, to selective exempted

distributions. In addition, the House Report No. 103-379, relating to

the bill (H.R. 3216) which subsequently was enacted as the DCDCA,

states ``This provision removes the exemption from record-keeping and

reporting requirements of the Controlled Substances Act (CSA) for drugs

containing ephedrine as the only active medicinal ingredient * * * It

also removes the exemption for ephedrine products containing

therapeutically insignificant quantities of other active ingredients.''

[emphasis added] At the time the DCDCA was enacted, the established

threshold for ephedrine in any form was one kilogram. As Congress did

not mention thresholds in its discussion of the exemption from

registration created by the 1993 amendments, it follows that in

enacting 21 U.S.C. 823(h), it meant the exemption from registration to

apply to drug products themselves, rather than to transactions in drug

products. Exempt products are not subject to the CSA's system of

thresholds; therefore, thresholds had no relevance to the discussion.

Therefore, a distributor who distributes any amount of a List I

chemical, including a drug product that is not exempt, is subject to

the registration requirement.

Two additional points were raised in this matter by the commentors.

The first dealt with the claimed inconsistency in DEA's determination

to exempt retail distributors from the registration requirement and not

exempt wholesale distributors if they engage solely in sub-threshold

sales. These commentors stated that since retail distributors, by

definition, limit sales to sub-threshold levels, wholesale distributors

who limit sales to the substantially higher thresholds for wholesalers

should also be exempt from registration.

There is no inconsistency in DEA's decision. The United States

Congress, with the substantial participation of the affected

industries, developed the MCA with the intent of providing controls to

prevent the diversion of products to the illicit manufacture of

methamphetamine, while not unnecessarily interfering with legitimate

public access to the products at the retail level.

The MCA does not make any pretense of amending the existing

chemical registration and recordkeeping requirements under the CSA, as

amended by the CDTA and DCDCA. The principal effect of the MCA is the

removal of the exemption for pseudoephedrine, phenylpropanolamine, and

combination ephedrine drug products, making these products subject to

the controls under the CSA that apply to all List I chemicals. Thus, as

with any other List I chemical, any person who distributes, imports, or

exports any amount of these products will be subject to the chemical

registration requirement and, to the extent that the transaction(s)

meet the threshold criteria, the chemical recordkeeping and reporting

requirements.

Within this framework, the MCA specifically establishes in the CSA

the unique category of `retail distributor' which is distinct from all

other distributors of List I chemicals. A retail distributor is defined

as a ``* * * person whose activities as a distributor relating to

pseudoephedrine or phenylpropanolamine products are limited almost

exclusively to sales for personal use, both in number of sales and

volume of sales, either directly to walk-in customers or in face-to-

face transactions by direct sales.'' The MCA further provides that the

``* * * sale of ordinary over-the-counter pseudoephedrine or

phenylpropanolamine products by retail distributors shall not be a

regulated transaction * * *'' [emphasis added]. These provisions

clearly establish Congress' intent that public access to the products

at the retail level be protected and that the protection applies only

to one specific type of activity carried out by one specific type of

distributor. It is equally clear, given the absence of any

corresponding provisions in the MCA for other distributors, that the

existing chemical controls, including registration, apply to the

activities of all other distributors.

DEA recognized that the threat of diversion from the retail level

would be minimized by adherence to the 24 gram per transaction

threshold and that this reduced threat does not now justify the

potential impact that the chemical controls might have on legitimate

public access to the products at the retail level. Thus, DEA determined

that an exemption from the registration requirement for retail

distributors of combination ephedrine products who engage exclusively

in sub-threshold transactions was consistent with the intent of the MCA

that legitimate public access to drug products at the retail level be

protected.

The absence of any exceptions in the MCA for non-retail

distributors, coupled with the much larger thresholds (1 kilogram for

combination ephedrine products and pseudoephedrine and 2.5 kilograms

for phenylpropanolamine); the need to balance the lack of controls over

transactions at the retail level with controls at the wholesale level;

and the fact that it has been DEA's experience that the most efficient

and effective means to identify and control diversion from the retail

and wholesale levels is through application of the controls at the

wholesale level, all pointed to the need to maintain the registration

requirement envisioned by the MCA at the wholesale level.

The second concern dealt with the lack of a comprehensive listing

identifying all of the products that contain ephedrine, and the

difficulties that distributors could encounter in terms of identifying

regulated products and complying with the chemical control

requirements. DEA recognizes that in the absence of a `closed system'

of distribution as exists for controlled

[[Page 52255]]

substances, the identification of products that may be subject to

regulation is more difficult. DEA will, where possible, work with the

industry to assist in identification of such products. Further, the MCA

makes all products containing ephedrine subject to regulation.

Manufacturers of such products will have to obtain their distributor

customers DEA registration numbers prior to distributing the products,

which should assist in identifying products that are subject to

regulation.

(3) Two comments asserted that the MCA exemption for sales of

ordinary over-the-counter pseudoephedrine and phenylpropanolamine

products by retail distributors and EAS's general exemption for retail

distributors (21 CFR 1309.29) should also apply to distributions to the

retail distributors by warehouses that are owned or operated by the

owner of a retail chain. The commentors argue that the definition of

retail distributors should encompass the entire retail distribution

system, which includes both the retail outlets and the warehouses or

storage facilities which are owned or operated by the same corporate

entity that owns the retail outlets. They state that the distributions

from the warehouses or storage facilities are not sales but transfers

or intracompany sales within the retail distributor operation that are

related to the retail sales of the products. One commentor last noted

that within their industry warehouses and storage facilities are

classified within the same Standard Industrial Classification (SIC)

code that the MCA references in the definition for the retail outlets.

The MCA provides that the ``* * * sale of ordinary over-the-counter

pseudoephedrine or phenylpropanolamine products by retail distributors

shall not be a regulated transaction * * *''. MCA, Section 401(b)(1);

21 U.S.C. 802(39) (A)(iv)(I)(aa). The MCA defines `retail distributor'

as ``* * * a grocery store, general merchandise store, drug store, or

other entity or person whose activities as a distributor relating to

pseudoephedrine or phenylpropanolamine products are limited almost

exclusively to sales for personal use, both in number of sales and

volume of sales, either directly to walk-in customers or in face-to-

face transactions by direct sales.'' (emphasis added] MCA Section

401(b)(4); 21 U.S.C. 802(46). `Sales for personal use' is defined as

``* * * the sale of below-threshold quantities in a single transaction

to an individual for legitimate medical use.'' MCA 401(b)(4); 21 U.S.C.

802(46)(B).

The definitions printed above describe the activities that a retail

distributor may engage in with sufficient detail to establish the type

of transactions that are to be exempted from regulation. The MCA

provides that the exemption shall apply to sales by persons whose

activities are limited almost exclusively to sales to individuals for

legitimate medical use, both in number of sales and volume of sales,

either directly to walk-in customers or in face-to-face transactions by

direct sales. This language clearly does not contemplate an exception

for a major class of wholesale distributions.

Further, the assertion that retail distributor should be defined as

the corporate entity that is engaged in the process of retail

distribution fails to acknowledge the requirements of the CSA with

respect to separate registration for separate locations. The chemical

registration requirements parallel the registration requirements

established for controlled substances handlers; under such

requirements, each location at which List I chemicals are distributed,

imported, or exported must be viewed individually, as a separate

person, for purposes of application of the chemical controls under the

CSA.

Under the circumstances, the MCA cannot be read as providing an

exemption for warehouses or storage facilities that operate within a

retail distribution system. The MCA recognizes, quite logically, that

if one portion of the distribution chain is to be granted exemption

from regulation, then the other portion of the chain must be subject to

control to insure that the distribution chain does not become a source

of supply for the methamphetamine traffickers.

DEA does wish to note that in addition to receiving comments

regarding registration for distributors of sub-threshold amounts of

product and registration for distributors within retail distribution

chains, the agency was also approached directly by the commentors for

clarification of the requirements in each case. At the same time that

this notice was drafted, individual responses were also provided

directly to the commentors in response to their requests for

clarification. While it may appear unusual for DEA to respond directly

to persons regarding issues that have been raised in formal comments

submitted in response to a rulemaking notice, it should be noted that

neither concern has a direct bearing on the substance of the interim

rule. The question of registration of distributors of sub-threshold

amounts of product involves interpretation of the registration

requirements established under the DCDCA in 1993; the MCA is only

peripherally involved through its removal of the exemption from

regulation for pseudoephedrine, phenylpropanolamine, and combination

ephedrine products, subjecting them to the existing registration

requirements. The question of registration for distributors within the

retail distribution system involves clarification of a specific

provision of the law which does not require any additional regulatory

provisions to implement beyond technical amendments to make the

language of the regulations consistent with the language of the law.

Further, it was necessary that the requestors be given clarification of

these points as quickly as possible to insure that the affected

distributors could be advised as to the need to submit applications for

registration prior to the deadline.

Following the close of the comment period of April 11, 1997, DEA

received a written request, dated April 17, 1997, for an extension of

the filing deadline for the temporary exemption in 21 CFR 1310.09. The

requestor, a representative of a segment of industry heretofore not

subject to DEA's chemical controls, cited industry misunderstandings

regarding the registration requirements of the CSA and DEA's

administration of the chemical control program in justifying the need

for an extension of the deadline. DEA recognized that there had been

confusion in the industry regarding the application of certain

requirements under the MCA; therefore, the application deadline for

temporary exemption was extended to July 12, 1997.

Accordingly, DEA's interim rule, published on February 10, 1997 (62

FR 5914), and amended on May 21, 1997 (62 FR 27693), is being adopted

as a final rule.

The Deputy Assistant Administrator for the Office of Diversion

Control hereby certifies that this rulemaking will not have a

significant economic impact upon a substantial number of entities whose

interests must be considered under the Regulatory Flexibility Act, 5

U.S.C. 601 et seq. This rulemaking is an administrative action to make

the regulations consistent with the law and to avoid interruption of

legitimate commerce by granting temporary exemptions from registration

pending promulgation, through notice and comment, of the regulations

necessary to implement the provisions of the MCA pertaining to

combination ephedrine products. Further, since this is a temporary

action which provides affected persons with a means to

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comply with the law pending promulgation of regulations implementing

the MCA, this action is not a significant regulatory action and

therefore has not been reviewed by the Office of Management and Budget

pursuant to Executive Order 12866. Consideration of the significant and

impact of the new requirements of the MCA will be addressed as part of

a future notice by DEA proposing regulations to implement the MCA.

This action has been analyzed in accordance with the principles and

criteria in Executive Order 12612, and it has been determined that this

rule does not have sufficient federalism implications to warrant the

preparation of Federalism Assessment.

This rule will not resulting the expenditure by State, local, and

tribal governments, in the aggregate, or by the private sector, of

$100,000,000 or more in any one year, and will not significantly or

uniquely affect small governments.

Therefore, no actions were deemed necessary under the provisions of

the Unfunded Mandates Reform Act of 1995.

This rule is not a major rule as defined by Section 804 of the

Small Business Regulatory Enforcement Fairness Act of 1996. This rule

will not result in an annual effect on the economy of $100,000,000 or

more; a major increase in costs or prices; or significant adverse

effects on competition, employment, investment, productivity,

innovation, or on the ability of United States-based companies to

compete with foreign-based companies in domestic and export markets.

Accordingly, the interim rule amending 21 CFR parts 1309, 1310, and

1313, which was published at 62 FR 5914 on February 10, 1997, and

amended at 62 FR 27693 on May 21, 1997, is adopted as a final rule.

Dated: September 29, 1997.

John H. King,

Deputy Assistant Administrator, Office of Diversion Control.

[FR Doc. 97-26177 Filed 10-6-97; 8:45 am]

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