state of iowa before the department of ... op n save 1...expert (kevin g. shanks) as a witness. mr....

STATE OF IOWA

BEFORE THE DEPARTMENT OF COMMERCE

ALCOHOLIC BEVERAGES DIVISION

IN RE: DOCKET NO. S-2014-00015

DIA NO. 14ABD006

Shop N Save, LLC

d/b/a Shop N Save #1

2127 Martin Luther King Jr. Pkwy

Des Moines, Iowa 50314 PROPOSED DECISION

Liquor License No. LE-1163

PROCEDURAL HISTORY

On March 4, 2014, the City of Des Moines, Iowa (hereinafter “local authority” or “city”)

filed an administrative Hearing Complaint and Request for Emergency Suspension

against Shop N Save, LLC d/b/a Shop N Save #1 (hereinafter “licensee” or “Shop N Save

#1”). The Hearing Complaint and Request for Summary Suspension was filed with the

Alcoholic Beverages Division (Division) and alleged that:

the licensee, its owner, or employees of licensee violated Iowa Code sections

123.49(2)(j), 123.401(1), and 123.401(5) by delivery, or possessing with intent to

deliver, and otherwise possessing a Schedule I controlled substance on the

licensed premises on December 9, 2013;

the licensee, its owner, or employees of licensee violated Iowa Code sections

123.49(2)(j) and 124A.4(1) by delivering or possessing with intent to deliver an

imitation controlled substance on the licensed premises on the following dates:

October 23, 2013; October 30, 2103; November 12, 2013; and November 19, 2013;

and

the ongoing possession, delivery, and possession with intent to deliver illegal

controlled substances and imitation controlled substances presented an

immediate danger to the public health, safety, and welfare warranting an

emergency suspension of the license under Iowa Code section 17A.18A.

On March 4, 2014, the Division issued a Summary Suspension Order, pursuant to Iowa

Code sections 17A.18A, 123.20, and 123.39. The Division’s Summary Suspension Order

DIA No. 14ABD006

immediately suspended Liquor License LE-1163, pending further proceedings before

the Division. The Summary Suspension Order was based upon the Division’s finding

that the licensee had engaged in criminal activity within the licensed premises, in

violation of Iowa Code section 123.49(2)(j), and that drug trafficking on the licensed

premises poses a significant risk to the public health, safety, and welfare.

On March 5, 2014, the licensee filed an appeal from the Summary Suspension Order.

The hearing was initially scheduled for March 21, 2014, but was indefinitely continued

at the licensee’s request. On September 26, 2014, the licensee filed an Application to Set

Hearing, and the hearing was rescheduled for October 27, 2014 at 8:00 a.m. by

agreement of the parties. The local authority was represented at hearing by Assistant

City Attorney Doug Philiph. The licensee was represented by attorneys Alfredo Parrish

and Gina Messamer. The hearing was recorded by a certified court reporter.

THE RECORD

The record includes the Hearing Complaint and Request for Emergency Suspension, the

Summary Suspension Order, the Notice of Hearing, Request for Continuance and

Continuance Order, Application to Set Hearing and Continuance Order, and an

Application for Expert to Testify by Telephone.1

In opening statement, the licensee’s attorney asserted that the licensee’s owners were

targeted for investigation based on their nationality and alleged a violation of the

owners’ right to equal protection under the state and federal constitutions. The

licensee’s attorney acknowledged, however, that the agency lacks the authority to rule

on constitutional issues and only asked to preserve this issue for further review.2

The record also includes the testimony of Des Moines Police Officer Brady Carney; Iowa

Division of Criminal Investigation Criminalist Amanda Kilgore; Des Moines Police

Officer Rahn Bjornson; and Private Investigator Delbert King. The record also includes

1 This motion was granted over the local authority’s objection, but the licensee later elected not to call the

expert (Kevin G. Shanks) as a witness. Mr. Shanks’ resume and two of his published articles were

submitted as exhibits. (Licensee Exhibits D, E1 and E2) 2 Soo Line R.R. v. Iowa Dep’t of Transportation, 521 N.W.2d 685, 688 (Iowa 1994); Shell Oil Co. v. Bair, 417

N.W.2d 425, 430 (Iowa 1987); Salsbury Laboratories v. Iowa Dep’t of Envtl. Quality, 276 N.W.2d 830, 836

(Iowa 1979).

DIA No. 14ABD006

Local Authority Exhibits 1-5, Licensee Exhibits A-G, the licensee’s Hearing Brief and

Post Hearing Brief, and the City of Des Moines’ Response Brief.

IMPORTANT NOTE CONCERNING THE HEARING RECORD: The local authority

filed similar Hearing Complaints and Requests for Summary Suspension Orders against

three other licensees who operate convenience stores within the Des Moines city limits.3

All four licensees appealed, and all are represented by attorney Alfredo Parrish.

Separate hearings were requested, and the hearings were scheduled to be held

throughout the day on October 27, 2014. At the time of the hearings, however, the

parties stipulated that the testimony of Amanda Kilgore, Rahn Bjornson, and Delbert

King would be submitted once and then considered as evidence in all four cases. In

addition, the parties stipulated that Officer Brady Carney would provide testimony

unique to each case concerning the controlled buys made at each individual store, but

the rest of his testimony would be submitted once and considered as evidence for all

four cases. This included Officer Carney’s testimony about his background, training,

and experience; his knowledge of synthetic cannabinoids; his submission of products

purchased during controlled buys for laboratory testing, and his receipt of the

laboratory reports containing the testing results. The parties agreed that Mr. Parrish

would give one opening statement for all four cases. The parties also agreed that the

court reporter would prepare a single chronological transcript of the day’s testimony

with four separate captions.

FINDINGS OF FACT

Shop N Save, LLC, d/b/a Shop N Save #1 has been issued Liquor License LE-11634 for

the premises located at 2127 M.L. King Jr. Parkway in Des Moines, Iowa. Saquib Ali

and Muhammad Imran applied for the liquor license on behalf of Shop N Save, LLC,

and they reported that they each owned 50% of the business identified as Shop N Save

#1. Shop N Save #1 is operated as a convenience store that currently sells food items,

soda, lottery tickets, and tobacco products. Prior to the summary suspension, Shop N

Save #1 also sold liquor for consumption off premises. (Summary Suspension Order;

Local Authority Exhibit 1, p. 17; Licensee Exhibit B; Testimony of Brady Carney)

3 See Docket Nos. S-2014-00014 (Shop N. Save on 6th Avenue), S-2014-00016 (Nat Food Mart on Hubbell

Avenue), and S-2014-00017 and 00018 (Nat Food Mart on 2nd Avenue). 4 A Class E Liquor License authorizes the holder to purchase alcoholic liquor from the Division only and

high alcoholic content beer from a class “AA” beer permittee only and to sell the alcoholic liquor and

high alcoholic content beer to patrons for consumption off the licensed premises and to other liquor

control licensees. The holder of a class “E” liquor license may also hold a class “B” wine or class “C” beer

permit or both for the premises licensed under a class “E” liquor license. Iowa Code section

123.30(3)(e)(2013).

DIA No. 14ABD006

Background Information

Des Moines Police Officer Brady Carney has been a police officer since 2007 and has

been assigned to the Des Moines Police Department’s Narcotics Control Section (NCS)

since July 2012. While assigned to NCS, Officer Carney has been responsible for

completing narcotics-related investigations including undercover investigations,

managing confidential informants, and executing search warrants. Officer Carney has

attended a number of trainings and conferences related to drug investigations and drug

trends. Based on his experience and training, Officer Carney is familiar with the

manner in which individuals market, sell, and deliver controlled substances, simulated

controlled substances, and imitation controlled substances. Individuals involved in

criminal activity may attempt to sanitize proceeds or assets gained from illegal activity

by filtering those proceeds and assets through businesses or gambling activities thereby

creating a credible and seemingly legitimate source for these proceeds and assets.

(Testimony of Brady Carney; Local Authority Exhibit 1, pp. 12-13)

Officer Carney has had many first-hand encounters with individuals who are involved

in purchasing, using, and selling “synthetic cannabinoids,” which are sometimes

referred to as “K-2,” “Kush,” or “Spice.” Synthetic cannabinoids are commonly

marketed under a number of different product names including “Cloud 9,” “Kush,”

“Caution,” “Mister Nice Guy,” “Diablo,” and “7H Hydro.” According to Officer

Carney, the term “Hydro” is commonly used to refer to hydroponic marijuana, and the

term “Kush” is used to refer to high grade or high quality marijuana. Both are common

street or slang terms for marijuana. Synthetic cannabinoids may be falsely marketed as

incense. They are typically packaged in small sealable packages or pouches labeled

“not for human consumption,” and are often designated with a skull and/or crossbones.

Synthetic cannabinoids are commonly sold in packages weighing approximately 3

grams. (Testimony of Brady Carney; Local Authority Exhibit 1, pp. 13-14)

Through his training and experience as a police officer, Officer Carney has learned that

synthetic cannabinoids are typically smoked in the same manner as marijuana.

Although many of these products are labelled as incense or potpourri, their price

(typically $20-$30) is much higher than the typical price for incense (3 or 4 sticks for a

dollar) or potpourri. Officer Brady was unfamiliar with anyone who burned these

products for their smell, which apparently is very unpleasant. Synthetic cannabinoid

users will often also purchase cigarillos, which are legal products, which they use to

smoke the synthetic cannabinoids. The user will cut the cigarillo’s wrapper lengthwise,

remove the tobacco, and then fill the wrapper with synthetic cannabinoids. The

common term for a cigarillo wrapper filled with either marijuana or synthetic

DIA No. 14ABD006

cannabinoids is a “blunt.” (Testimony of Brady Carney; Local Authority Exhibit 1, p.

14)

The active ingredient in marijuana is THC, which is present in the marijuana plant

itself. Synthetic cannabinoids, however, are created when chemicals that have been

synthesized in a laboratory and dissolved into a liquid have been sprayed on a plant

material, such as potpourri or spice. The active ingredients in synthetic cannabinoids

work on the same brain receptors (CB1 and CB2) as marijuana and have similar effects

on the user’s body.5 The federal government enacted the Controlled Substances

Analogue Enforcement Act of 1986 (21 U.S.C. §813), which treats analogue substances

(substances that have a chemical structure substantially similar to a controlled

substance and that have similar effects on the central nervous system) the same as a

controlled substance under federal law, although there have been few prosecutions

under the under the federal analogue law. 6 The state of Iowa does not have a

controlled substance analogue law. 7 (Testimony of Amanda Kilgore)

Both the federal government and the state of Iowa have taken legislative actions to

designate the specific active ingredients identified in some synthetic cannabinoids as

Schedule I controlled substances. The individuals that manufacture the synthetic

cannabinoids have responded by altering the chemical composition of their products so

that they do not include designated controlled substances. There is little quality

control in the manufacture, packaging, and labeling of synthetic cannabinoids,

however. It is not unusual for the testing laboratories to find that identically packaged

and identically labelled products actually have different chemical compositions or

active ingredients. For example, one product may test positive for a Schedule I

controlled substance while an identically packaged product may only test positive for

non-controlled synthetic cannabinoids. (Testimony of Amanda Kilgore; Licensee

Exhibits D, E1, E2)

Officer Carney has responded to several medical emergencies where individuals have

had severe and life-threatening side effects from ingesting synthetic cannabinoids.

These side effects have included severely elevated heartbeat, slurred speech, and

inability to form speech, foaming at the mouth, tremors or seizures, belligerence,

5 The effects of the synthetic cannabinoids have been reported to include agitation, delusions,

hypertension, psychosis, sedation, and tachycardia. (Licensee Exhibit E1, p. 1). 6 21 U.S.C. §§ 813, 802(32)(A). 7 Iowa does have a statute prohibiting the manufacture, delivery, or possession with intent to deliver of

an imitation controlled substance. See Iowa Code section 124A.4.

DIA No. 14ABD006

hallucinations, comatose-like states, and cardiac arrest.8 Officer Carney further reports

that he has responded to medical emergencies where the ingestion of synthetic

cannabinoids has led to the death of the user. (Testimony of Brady Carney; Local

Authority Exhibit 1, p. 14)

In August 2013, Officer Carney learned of a large scale Drug Enforcement Agency

(DEA) investigation involving the alleged sale of synthetic cannabinoids in Northeast

Iowa. The primary targets of that investigation were Muhammad Anwar, Muhammed

Imran, Abdul Waheed and Jalali Waheed. DEA Task Force Officer Bryan Furman

informed Officer Carney that all four of these individuals were currently living in the

Des Moines area and were believed to be involved in the sale of synthetic cannabinoids

from stores. Muhammad Imran is a 50% owner of Shop N Save #1. In 2013 and early

2014, the Des Moines Police Department received several complaints alleging that Shop

N Save #1 was selling synthetic cannabinoids that were kept behind the counter. Based

on the information received from the investigation in Northeast Iowa and based on

other complaints, the Des Moines Police Department started an investigation of several

Des Moines convenience stores, including Shop N Save #1, to determine if the stores

were selling synthetic cannabinoids to the public. (Testimony of Brady Carney; Local


Five Controlled Buys at Shop N Save #1 (October 23, 2013-December 9, 2013)

During the investigation, Officer Carney used confidential informants (hereinafter

“CI#1” or “CI#2”) to make “controlled” purchases (i.e. purchases under the direction

and surveillance of police officers) of synthetic cannabinoids at Shop N Save #1. Prior

to each purchase, Officer Carney and another officer searched the CI and his/her vehicle

for contraband or currency. Finding none, Officer Carney gave the CI currency and

instructed the CI to try to make a purchase of synthetic cannabinoids at Shop N Save #1.

The officers followed the CI to Shop N Save #1, making sure that no stops were made

along the way. The officers observed the CI enter and exit Shop N Save #1 and then

followed the CI to a predetermined location where they were given any purchase made

by the CI. The CI was equipped with an audio and video recorder that recorded all of

the transactions. The officers reviewed the recordings following each purchase to

ensure that they were consistent with the CI’s reports of what happened. The CI was

able to purchase products containing synthetic cannabinoids, including one purchase of

8 Officer Carney’s testimony concerning the effects of synthetic cannabinoids on the user is consistent

with the research paper submitted into evidence by the licensee, which notes that agitation, delusions,

disorientation, hypertension, psychosis, sedation, and tachycardia have been reported from the use of

synthetic cannabinoids. (Licensee Exhibit E-1, p. 1)

DIA No. 14ABD006

a product containing XLR11, at Shop N Save #1 on the following dates: October 23,

2013; October 30, 2013, November 12, 2013, November 19, 2013, and December 9, 2013.

(Testimony of Brady Carney; Local Authority Exhibit 1, pp. 26-39)

October 23, 2013

On October 23, 2013, the police officers watched as CI#1 entered Shop N Save #1, exited

the store a short time later, went to the passenger side of his/her vehicle, and then re-

entered the store. A short time later, the CI exited the store and left in his/her vehicle.

The officers followed the CI back to the predetermined location; no stops were made.

At the predetermined location, the CI handed Officer Brady multiple cigarillos and a

pouch of “KUSH 7H.” The CI and his vehicle were searched, and no other currency or

contraband was found. (Local Authority Exhibit 1, p. 26-27; Testimony of Brady

Carney)

The CI reported that he/she went inside the Shop N Save #1 and asked a black female

clerk in her 20s for “something to smoke.” After the clerk asked the CI for

identification, the CI left to retrieve identification from his/her vehicle before returning

to the store. After the CI presented identification, the clerk sold the CI a package of

“Kush 7H” for $25.00. The CI also purchased cigarillos. The clerk did not offer or give

the CI a receipt for the purchase. The officers reviewed the recordings of the

transaction. Although this particular audio recording was largely inaudible, the video

corroborated the events as described by the CI. (Local Authority Exhibit 1, p. 26-27;

Testimony of Brady Carney)

Officer Carney submitted the package of “Kush 7H” to the Iowa Division of Criminal

Investigation (DCI) laboratory for testing. On November 21, 2013, DCI Criminalist

Amanda Kilgore issued a written report concerning the results of the testing. Amanda

Kilgore has a B.S. degree in Chemistry and Forensic Science, and she has been

employed by the DCI Crime Laboratory for 8 years. She was previously employed by

the federal Drug Enforcement Agency (DEA) Laboratory in Virginia. Ms. Kilgore has

had substantial experience testing and identifying synthetic cannabinoids. Ms. Kilgore

reported that the “Kush 7H” purchased on October 23, 2013 weighed 3.20 grams and

was instrumentally consistent with AB-FUBINACAand 5-fluoro-PB-22, both of which

were described by Ms. Kilgore as non-controlled synthetic cannabinoids. 9 (Testimony

of Brady Carney, Amanda Kilgore; Local Authority Exhibit 2, Lab #4)

9 Ms. Kilgore testified that since that time AB-FUBINACA has been added to the list of controlled

substances.

DIA No. 14ABD006

October 30, 2013

On October 30, 2013, CI#1 returned to Shop N Save #1 and purchased multiple

cigarillos and a pouch of “7H Hydro,” under the same supervision and controls as the

prior purchase. The CI reported that he observed “two Arab male employees in their

20s or early 30s” inside the store. The CI reported that a male clerk sold him/her the

“7H” after retrieving it from behind the counter. The CI further reported that he asked

for a pipe, and the clerk told him/her to check out another store on 86th Street. On the

audio/video footage of the transaction, Officer Carney heard the CI ask the clerk for

“Diablo.” Officer Carney also heard the clerk state they have “7H” and then say “25.”

Carney saw that the product was kept out of view below and behind the counter. He

also heard the CI ask for a pipe and heard the clerk tell him they did not sell pipes but

suggesting that the CI go to another store on 86th Street in Clive. The CI responded “So,

nothing to smoke it in besides wraps, huh?” (Local Authority Exhibit 1, p. 29;

Testimony of Brady Carney)

Officer Carney submitted the package of “7H Hydro” to the DCI laboratory for testing.

On November 21, 2013, DCI Criminalist Amanda Kilgore issued a written report

concerning the results of the testing. The “7H Hydro” purchased on October 30, 2013

weighed 2.99 grams and was instrumentally consistent with AB-FUBINACA, which

was described by Ms. Kilgore as non-controlled synthetic cannabinoid. (Testimony of

Brady Carney; Local Authority Exhibit 2, Lab #9)

November 12, 2013

On November 12, 2013, CI#1 returned to Shop N Save #1 and purchased a package of

cigarillos and a pouch of “7H,” under the same supervision and controls as the prior

purchases. The CI reported that he asked a male clerk in his 20’s for “7H.” The male

clerk asked for identification, and the CI retrieved it from his/her vehicle. The CI

purchased a pouch of “7H” for $25.00. The CI reported that the clerk retrieved the

pouch of “7H” from under the counter directly below the cash register. The CI also

asked for a package of cigarillos. The clerk rang up the “7H” separately from the

cigarillos and did not put the $25.00 from the 7H purchase in the cash register. The

audio/video footage of the transaction was consistent with the CI’s report. (Local

Authority Exhibit 1, p. 33; Testimony of Brady Carney)

Officer Carney submitted the package of “7H” to the DCI laboratory for testing. On

December 7, 2013, DCI Criminalist Amanda Kilgore issued a written report concerning

the results of the testing. The “7H” purchased on November 12, 2013 weighed 3.00

DIA No. 14ABD006

grams and was instrumentally consistent with AB-FUBINACA, which was described by

Ms. Kilgore as non-controlled synthetic cannabinoid. (Testimony of Brady Carney;

Local Authority Exhibit 3, #16)

November 19, 2013

On November 19, 2013, CI#1 returned to Shop N Save #1 and purchased a package of

cigarillos and a pouch of “Diablo,” under the same supervision and controls as the prior

purchase. The CI reported that he asked the clerk for something better than “7H.” The

clerk replied “Diablo,” and the CI purchased a pouch of “Diablo” for $25.00. The CI

reported that the clerk retrieved the pouch of “Diablo” from under the counter directly

below the cash register. The CI also asked for a package of cigarillos. The clerk rang up

the “Diablo” separately from the cigarillos and did not put the $25.00 from the Diablo

purchase in the cash register. The audio/video footage of the transaction was consistent

with the CI’s report. (Local Authority Exhibit 1, p. 35-36; Testimony of Brady Carney)

Officer Carney submitted the package of “Diablo” to the DCI laboratory for testing. On

December 7, 2013, DCI Criminalist Amanda Kilgore issued a written report concerning

the results of the testing. The “Diablo” purchased on November 19, 2013 weighed 2.91

grams and was instrumentally consistent with AB-FUBINACA and AB-PINACA, which

were described by Ms. Kilgore as non-controlled synthetic cannabinoids. (Testimony of

Brady Carney; Local Authority Exhibit 3, #20)

December 9, 2013

On December 9, 2013, CI#1 returned to Shop N Save #1 and purchased a package of

cigarillos and a pouch of “7H Hydro,” under the same supervision and controls as the

prior purchase. The CI reported that he asked the “Arab male adult” clerk for “7H” or

“Diablo.” The clerk asked the CI for identification and then handed him a pouch of “7H

Hydro.” The CI also asked for a package of cigarillos. The CI reported that the clerk

did not run the “”7H Hydro” purchase through the cash register. The audio/video

footage of the transaction was consistent with the CI’s report. On the audio recording,

the CI can be heard asking “Do people tell you which ones are better?” and a male voice

replying “7H.” Officer Carney did not note the price paid for the “7H Hydro” on this

date. He believed that it was $25.00. (Local Authority Exhibit 1, p. 35-36; Testimony of

Brady Carney)

Officer Carney submitted the package of “7H Hydro” to the DCI laboratory for testing.

On December 31, 2013, DCI Criminalist Amanda Kilgore issued a written report

DIA No. 14ABD006

concerning the results of the testing. The “7H” purchased on December 9, 2013

weighed 3.05 grams and was instrumentally consistent with XLR11, which Ms. Kilgore

described as a Schedule I substance, and AB-FUBINACA, which Ms. Kilgore described

as a non-controlled synthetic cannabinoid at the time of the purchase. (Testimony of

Brady Carney; Local Authority Exhibit 4, #24)

Additional Unsuccessful Controlled Buys

Confidential informants also made several unsuccessful attempts to purchase synthetic

cannabinoids at Shop N Save #1.

On January 23, 2014, CI#1 asked a male clerk working at Shop N Save #1 for

“7H” or “Diablo” and was told to go to the Shop N Save on 6th Avenue. The

clerk stated that they had not sold any “7H” or “Diablo” for several months. On

the audio recording, the clerk was heard to say that they stopped selling in June.

(Local Authority Exhibit 1, pp. 41-42);

On January 27, 2014, CI#1 was sent into Shop N Save #1 and asked for “7H” or

“Diablo.” Two male clerks were working, and the CI recognized one of the

clerks as a person who had been working during one of the prior transactions.

On the audio, a male voice can be heard to respond “I stopped selling.” When

the CI asked why, the male voice was heard to reply “…it’s a mess.” When the

CI asked where he could find some, the clerk referred him to the Shop N Save on

6th Avenue. (Local Authority Exhibit 1, p. 44);

On February 18, 2014, CI#2 attempted to make a controlled purchase of synthetic

cannabinoids at the Shop N Save #1. CI#2 asked a female clerk for “Diablo,” and

she responded ‘’We don’t sell it.” The clerk told the CI that 6th Avenue Shop N

Save and another convenience store were selling it. (Local Authority Exhibit 1,

pp. 53-54)

On February 24, 2014, CI#2 went into the Shop N Save #1 and asked the female

clerk for “Diablo.” The clerk told the CI that they had it but were not selling it

right now. The clerk referred the CI to the Shop N Save on 6th Avenue. (Local


Events Following the Controlled Buys

On March 4, 2014, a search warrant was executed at the Shop N Save #1 at 2127 Martin

Luther King Jr. Parkway in Des Moines. The search warrant was issued based on the

submission of two affidavits from Officer Carney. The affidavits described Officer

Carney’s training and background as well as detailed information about the controlled

DIA No. 14ABD006

buys conducted at the Shop N Save #1, police surveillance of the owners of Shop N Save

#1, and information about the licensee’s bank accounts. The affidavit also included

information about the investigation and controlled buys at another Shop N Save store,

which is located at 1829 6th Avenue in Des Moines and which has also had its liquor

license summarily suspended for sales of synthetic cannabinoids.10 (Local Authority

Exhibit 1; Testimony of Brady Carney)

In his affidavit, Officer Carney outlined the evidence that led him to believe that the

manner in which Shop N Save #1 was selling synthetic cannabinoids was consistent

with the sale and distribution of controlled substances, simulated controlled substances,

imitation controlled substances, and synthetic substances as prohibited by Iowa law.

This evidence included:

keeping the synthetic cannabinoids below the counter while traditional incense

and potpourri was displayed on open shelves;

the price disparity between synthetic cannabinoids and the traditional incense

and potpourri sold by the store;

the clerk’s refusal to sell synthetic cannabinoids without age verification;

the sale proceeds from the synthetic cannabinoids were rung up separately and

the cash from these sales were sometimes kept in a separate location;

no receipts were given or offered for the sale of synthetic cannabinoids;

sales tax was charged on traditional products but not for the synthetic

cannabinoids;

the clerks’ selective sale of synthetic cannabinoids to some people and not others;

the purchase of the synthetic cannabinoids with cigarillos, which are commonly

used to ingest the synthetic cannabinoids;

the language used by the clerks and the purchasers when referring to synthetic

cannabinoids; and

the proprietors’ efforts to distance themselves from the synthetic cannabinoids

found in their possession.

(Local Authority Exhibit 1, pp. 58-59; Testimony of Brady Carney)

10 See Docket No. S-2014-00014. Saquib Ali is an owner of both of these Shop N Save stores. In addition,

the two stores have some of the same employees and shared some bank accounts. The license for the

Shop N Save located at 1829 6th Avenue is held by Shop N Save Food, LLC. Saquib Ali and Abdul Islam

applied for the license for the Shop N Save on 6th Avenue. They reported that they are equal 50%

owners. (Local Authority Exhibit 1, p. 17; Testimony of Brady Carney)

DIA No. 14ABD006

A number of items were seized at the Shop N Save #1 during the execution of the search

warrant on March 4, 2014. The seized items included:

paperwork and register receipts;

U.S. cash in the following amounts: $440.00, $204.00, $150.00, and $86.00;

30 “sketch pens,” which have limited functionality as pens and are commonly

used as crack pipes;

136 “glass rose” pipes which are commonly used to ingest illegal narcotics;

2 boxes of “Choreboy” scrubbers, one open, which are commonly put in glass

pipes to aid in ingesting crack cocaine;

1 box of brass screens, which are commonly used as filters in glass or metal

pipes; and

Zig Zag papers.

(Local Authority Exhibit 5; Testimony of Brady Carney)

The Division issued its Summary Suspension Order on March 4, 2014. The evidence

indicates that the licensee has been in compliance with the Summary Suspension Order

and has not sold alcoholic beverages in violation of the Order. The licensee continues

to hold the necessary licenses to sell tobacco products and lottery tickets. (Summary

Suspension Order; Testimony of Rahn Bjornson, Brady Carney; Licensee Exhibit B)

No criminal charges have been filed against the owners of Shop N Save #1 as a result of

the police investigation. (Testimony of Brady Carney) On July 9, 2014, the owners of

Shop N Save #1, Saquib Ali and Muhammad Imran, as well as eight other named

individuals11 and two banks entered into a Settlement Agreement with the Polk County

Attorney’s Office concerning the forfeiture of cash, bank accounts, and other property

that had been seized from them during the investigation. The parties named in the

forfeiture proceeding, including Saquib Ali and Mohammad Imran, agreed to forfeit a

total of $295,760.19 in cash and/or bank accounts. They also agreed to forfeit a 2010 Kia

automobile and two motorcycles. (Licensee Exhibit A)

CONCLUSIONS OF LAW

I. Emergency Suspension of Liquor License

11 Abdul Islam, who is the co-owner of the Shop N Save on 6th Avenue along with Saquib Ali, was also a

party to this forfeiture settlement.

DIA No. 14ABD006

The Iowa Alcoholic Beverages Control Act (Iowa Code chapter 123) is an exercise of the

police power of the state for the protection of the welfare, health, peace, morals, and

safety of the people of the state, and all its provisions shall be liberally construed for the

accomplishment of that purpose. It is declared to be public policy that the traffic in

alcoholic liquors is so affected with a public interest that it should be regulated to the

extent of prohibiting all traffic in them, except as provided in chapter 123. 12

Administrative agencies are authorized by statute to use emergency adjudicative

proceedings in a situation involving an immediate danger to the public health, safety or

welfare requiring immediate agency action.13 The agency may only take such action as

is necessary to prevent or avoid the immediate danger to the public health, safety, or

welfare that justifies the use of the emergency adjudication.14 After issuing an order

pursuant to its emergency adjudicative authority, the agency shall proceed as quickly as

feasible to complete any proceedings that would be required if the matter did not

involve immediate danger. 15Summary suspension of a license may be ordered pending

proceedings for revocation or other action, which shall be promptly instituted and

determined.16

The Division has adopted administrative rules governing emergency adjudicative

proceedings at 185 IAC 10.31. The rules provide, in relevant part, that the Division may

suspend a license, in whole or in part.17 Before issuing an emergency adjudicative order

the agency shall consider factors including, but not limited to, the following:

a. Whether there has been a sufficient factual investigation to ensure that the

agency is proceeding on the basis of reliable information;

b. Whether the specific circumstances which pose immediate danger to the

public health, safety or welfare have been identified and determined to be

continuing;

c. Whether the person required to comply with the emergency adjudicative

order may continue to engage in other activities without posing immediate

danger to the public health, safety or welfare;

d. Whether imposition of monitoring requirements or other interim safeguards

would be sufficient to protect the public health, safety or welfare; and

12 Iowa Code section 123.1 (2013). 13 Iowa Code section 17A.18A(1)(2013). 14 Iowa Code section 17A.18A(2)(2013). 15 Iowa Code section 17A.18A(5)(2013). 16 Iowa Code section 17A.18A(2013). 17 Iowa Code section 185 IAC 10.31(1).

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e. Whether the specific action contemplated by the division is necessary to avoid

the immediate danger.

185 IAC 10.31(2).

Based on the investigation conducted by the Des Moines Police Department, the

Alcoholic Beverages Division was justified in issuing the emergency suspension of the

licensee’s liquor license. The Division was provided sufficiently detailed and

sufficiently reliable information upon which to conclude that controlled substances and

imitation controlled substances had been purchased from the licensee’s employees on

the licensed premises on at least five occasions over a period of two months. There is a

strong public interest in stopping and preventing the use of licensed liquor

establishments as locations for the sale of illegal drugs. 18 The illegal sale of drugs,

including synthetic cannabinoids, poses a substantial risk to the public health, welfare

and safety, and a licensee’s use of the licensed premises for this purpose justifies a

summary suspension of the liquor license. A prompt hearing was scheduled on the

emergency suspension, and the delay in proceeding to hearing was due solely to the

licensee’s continuance requests. When the licensee asked for the hearing to be reset, one

was promptly scheduled, in accordance with Iowa Code section 17A.18A and 185 IAC

10.31.

II. Division’s Authority to Suspend or Revoke the Liquor License for Knowingly

Permitting or Engaging in Illegal Activity on the Licensed Premises

The Division’s Administrator or the local authority may suspend a liquor license or beer

permit for a period not to exceed one year, may revoke the license or permit, and/or

may impose a civil penalty not to exceed one thousand dollars for any violation of the

provisions of Iowa Code chapter 123.19 A criminal conviction is not a prerequisite to

suspension, revocation, or imposition of a civil penalty.20

Iowa Code section 123.49(2)(j) (2013) provides:

18 See 185 IAC 4.7(4) (“No licensee, permittee, their agent or employee, shall knowingly permit the

licensed premises to be frequented by, or become the meeting place, hangout or rendezvous for …those

wo are known to engage in the use, sale or distribution of narcotics, or in any other illegal occupation or

business.”) 19 Iowa Code section 123.39(1)(b)(2)(2013). 20 Iowa Code section 123.39(1)(c)(2013).

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2. A person or club holding a liquor control license or retail wine or

beer permit under this chapter, and the person's or club's agents or

employees, shall not do any of the following:

...

j. Knowingly permit or engage in any criminal activity on the

premises covered by the license or permit.

(Emphasis added). Similarly, the Division’s administrative rules specifically provide

that a violation of Iowa Code chapter 123 by any employee, agent, or servant of a

licensee shall be deemed to be the act of the licensee and shall subject the licensee to

suspension and revocation.21

In order to show a violation of Iowa Code section 123.49(2)(j) for knowingly permitting

or engaging in illegal activity on the licensed premises, it is only necessary to show that

the licensee or its employees were aware that the activity was occurring on the legal

premises.22 It is unnecessary to demonstrate or show that the licensee or its employees

knew that they were violating the law by permitting or engaging in the specific

activity.23

A. Sale/Delivery of Imitation Controlled Substances

In paragraph 9 of the Hearing Complaint, the local authority alleges that the licensee, its

owner, or its employees knowingly permitted or engaged in criminal activity on the

licensed premises, in violation of Iowa Code section 123.49(2)(j), by delivering or

possessing with intent to deliver an imitation controlled substance, in violation of Iowa

Code section 124A.4(1). The local authority alleged that the licensee or the licensee’s

employees delivered or possessed with intent to deliver imitation controlled substances

on the following dates: October 23, 2013, October 30, 2013, November 12, 2013, and

November 19, 2013.

21 185 IAC 4.8. 22 See Sullivan v. Iowa Departmental Hearing Board of Iowa Beer and Liquor, 325 N.W.2d 923,926 (Iowa Ct.

App.1982). (The Court construed Iowa Code section 123.49(2)(a) and held that the word "knowingly" in

the subsection prohibiting licensees or the licensees’ employees from knowingly permitting gambling on

the licensed premises, modifies the word "permit" rather than "violate." The court noted that a person's

knowledge of the law is generally presumed, particularly when the activity challenged is regularly

conducted by the person in the course of business.) 23 Id.

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Iowa Code Chapter 124A is the “Imitation Controlled Substances Act.”24 “Imitation

Controlled Substance” means a substance which is not a controlled substance but which

by color, shape, size, markings, and other aspects of dosage unit appearance, and

packaging or other factors, appears to be or resembles a controlled substance. The

board of pharmacy may designate a substance as an imitation controlled substance

pursuant to the board’s rulemaking authority and in accordance with chapter 17A.25

When a substance has not been designated as an imitation controlled substance by the

board of pharmacy and when dosage unit appearance alone does not establish that a

substance is an imitation controlled substance, the following factors may be considered

in determining whether the substance is an imitation controlled substance:

1. The person in control of the substance expressly or impliedly

represents that the substance has the effect of a controlled substance.

2. The person in control of the substance expressly or impliedly

represents that the substance because of its nature or appearance can be

sold or delivered as a controlled substance or as a substitute for a

controlled substance.

3. The person in control of the substance either demands or receives

money or other property having a value substantially greater than the

actual value of the substance as consideration for the delivery of the

substance.26

It is unlawful for a person to manufacture, deliver, or possess with intent to deliver, an

imitation controlled substance. A person who does so is generally guilty of an

aggravated misdemeanor.27

By administrative rule, the Pharmacy Board has designated certain synthetic

cannabinoids, including products by whatever trade name that are treated, sprayed, or

saturated with these synthetic cannabinoids, as “imitation controlled substances”

subject to the provisions of Iowa Code chapter 124A.28 None of the substances at issue

24 Iowa Code section 124A.1(2013). 25 Iowa Code section 124A.2(4)(2013). 26 Iowa Code section 124A.3(2013). 27 Iowa Code section 124A.4(1)(2013). If a person 18 years of age or older violates subsection 124A.4(1) by

delivering an imitation controlled substance to a person under 18 years of age who is at least three years

younger than the violator, then the offense is classified as a class “D” felony. Iowa Code section 124.4(3). 28 657 IAC 10.41(1). The Pharmacy Board’s rule also identifies some currently marketed products

containing the imitation controlled substances identified in subrule 10.41(1) as including K2, Red Dragon

Smoke, Spice, K2 Spice, Mojo, Smoke, Skunk, K2 Summit, and Pandora Potpourri. 657 IAC 10.41(2).

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in this contested case, however, have been specifically designated in the Board’s rules as

“imitation controlled substances.” Therefore, the factors outlined in Iowa Code section

124A.3 must be considered in determining whether or not the substances sold by the

licensee’s employees on the licensed premises constituted illegal “imitation controlled

substances.”

The preponderance of the evidence in this record established that the licensee’s

employees repeatedly sold imitation controlled substances on the licensed premises, in

violation of Iowa Code sections 123.49(2)(j) and 124A.4(1). The DCI Laboratory Reports

and the testimony of Officer Carney established that each of the packages purchased by

the Des Moines’ Police Department’s confidential informant (CI) at the licensed

premises contained at least one of the following synthetic cannabinoids: AB-

FUBINACA, 5-fluoro-PB-22, AB-PINACA, and XLR11. According to DCI Criminalist

Amanda Kilgore, synthetic cannabinoids have active ingredients that work on the same

brain receptors (CB1 and CB2) as marijuana, and they have similar effects on the body

as marijuana. Moreover, the totality of the circumstances surrounding these sales

supports the conclusion that the licensee’s employees fully understood that customers

were purchasing and smoking these products as a substitute for a controlled substance

and to obtain the same effect as a controlled substance.

The licensee and the licensee’s employees were clearly the “persons in control” of these

substances, which unlike legal products were kept beneath the store’s front counter and

out of sight of the store’s customers. Contrary to the typical procedures for the sale of

legal products such as incense or potpourri, no receipts were provided for the sale of

the synthetic cannabinoids. No sales tax was added to the purchase price. In order to

purchase the substances, customers had to specifically request them from the licensee’s

employee, had to show identification if requested to do so, and had to pay

approximately $25 for a 3 gram package, which is substantially higher than the typical

price for potpourri or incense.

With each purchase, the CI also purchased cigarillos, which are commonly used for

smoking marijuana or synthetic cannabinoids. The licensee’s employees who made

the sale clearly understood that the CI intended to smoke the substance that the CI was

purchasing. On October 23, 2013, the CI asked for “something to smoke” and the clerk

asked the CI for identification before selling the CI a 3.20 gram package of “7H Hydro”

for $25.00. On October 30, 2013, the CI asked to purchase a pipe with the “7H.” When

the CI was told that the store did not sell pipes, the CI commented “So nothing to

smoke it in besides wraps, huh?” On December 9, 2013, the CI asked the employee if

people told him “which ones were better?” and the employee responded “7H.” The

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circumstances of these sales were wholly inconsistent with the purchase of legal

products, such as incense or potpourri, which are not intended for human consumption

or ingestion.29

The preponderance of the evidence supports the conclusion that the licensee’s

employees knowingly engaged in or permitted illegal activity on the licensed premises

when they repeatedly sold synthetic cannabinoid products from under the counter. The

licensee is liable for the acts of its employees.30 The circumstances of the sales support

the conclusions that these products constituted imitation controlled substances, which

were sold in violation of Iowa Code section 124A.4(1). The licensee argues in its brief

that the licensee had a good faith belief that the products were legal. The licensee

offered no testimony from the store’s owners or from its employees, however, to

support that contention other than Officer Carney’s concession that some of the

synthetic cannabinoids had labels indicating the absence of all banned substances.

Moreover, the local authority was not required to prove that the licensee’s employees

knew that the particular substances being sold were in fact illegal, knowledge of the law

is presumed when the activity challenged is regularly conducted by the person in the

course of business.31

B. Sale/Delivery of a Controlled Substance [XLR11] on December 9, 2013.

The preponderance of the evidence in the record established that on December 9, 2013,

one of the licensee’s employees sold a substance labelled “7H Hydro” to the CI who

was working with the Des Moines Police Department. The testimony of Officer Carney

and the DCI laboratory test results established that this package of “7H Hydro”

contained the following synthetic cannabinoids: XLR11 and AB-FUBINACA.

In paragraph 8 of the Hearing Complaint, the local authority alleged that on December

9, 2013, the licensee, its owner, or its employees violated Iowa Code section 123.49(2)(j)

29 Commentators have concluded that “a conspicuous ‘not for human consumption’ label has in many

ways become code for ‘this product is a drug.’ “ State v. Heinrichs, 845 N.W.2d 450, 457, ftnte 4 (quoting

from Timothy P. Stackhouse, 54 Ariz. L. Rev. 1105, 1131 (2012). 30 Iowa Code section 123.49(2)(j); 185 IAC 4.8. 31 Sullivan, 325 N.W. 2d 923, 926. See also United States v. Sheppard, 219 F.3d 766, 769 (8th Cir, 2000) (“The

government is not required to prove that the defendant knew the exact nature of the substance with

which he was dealing”) and United States v. Ramos, NDIA NO. 13-CRF-2034-LRR, 2014 WL 4437554

(9/9/2014 Order) (finding that the amount Ms. Ramos charged for her products, where she stored the

products in her store, and the fact she offered investigating officers ‘rolling papers’ along with the sale of

a synthetic cannabinoid was sufficient evidence to support a conviction for knowingly distributing an

illegal controlled substance.).

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by delivering, possessing with intent to deliver, and otherwise possessing a Schedule I

Controlled Substance, in violation of Iowa Code sections 124.401(1), and 124.401(5).

Iowa Code section 124.401(1) prohibits the manufacture, delivery, or possession with

intent to deliver a controlled substance. Iowa Code section 124.401(5) prohibits the

possession of controlled substances. In its Hearing Complaint, the local authority did

not specifically name the alleged controlled substance (XLR11) involved in the

December 9th transaction nor did it specifically cite to the state or federal law provisions

that designated XLR11 as a controlled substance.

Iowa Code section 124.201 authorizes the Iowa Board of Pharmacy to recommend

changes in the schedules of controlled substances to the Iowa legislature. Subsection

124.201(4) requires the Pharmacy Board to designate a new substance as a controlled

substance under certain circumstances. Subsection 124.201(4) provides, in relevant part:

If any new substance is designated as a controlled substance under federal

law and notice of the designation is given to the board, the board shall

similarly designate as controlled the new substance under this chapter after

the expiration of thirty days from publication in the Federal Register of a

final order designating a new substance as a controlled substance, unless

within that thirty-day period the board objects to the new designation….

If a substance is designated as controlled by the board under this

subsection the control shall be temporary and if within sixty days after the

next regular session of the general assembly convenes it has not made the

corresponding changes in the chapter, the temporary designation of

control of the substance by the board shall be nullified.

(Emphasis added). The United States Drug Enforcement Agency (DEA) classified

XLR11 as a scheduled I controlled substance under federal law effective May 16, 2013.

This was nearly seven months prior to the December 9, 2013 sale on the licensed

premises.32

Effective July 9, 2013, the Iowa Pharmacy Board adopted an emergency rule, consistent

with its mandate under Iowa Code section 123.201(4), which temporarily classified

XLR11 as a schedule I controlled substance in Iowa.33 In its statements accompanying

the adoption of the emergency rule, the Board specifically found that XLR11 (and two

other substances) have a high potential for abuse, have no currently accepted medical

32 78 FR 28735-28739. See also, 21 CFR 1308.11(h)(10). 33 Iowa Administrative Bulletin Vol. XXXVI, No. 3, August 7, 2013, pp. 311-312, ARC 0893C; 657 IAC

10.38(1).

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use in the United States, and lack accepted safety for use under medical supervision.

The Board further found that:

… notice and opportunity for public participation are unnecessary and

impracticable due to the immediate need for this amendment in order to

avoid an imminent hazard to the public safety. Products laced with these

synthetic substances are being abused mainly by smoking for their

psychoactive properties. The products are being marketed as “legal”

alternatives to marijuana but these synthetic cannabinoids have been

shown to display higher potency in scientific studies when compared to

THC. Smoking mixtures of these substances for the purpose of achieving

intoxication has been identified as a reason for numerous emergency room

visits and calls to poison control centers. Abuse of these synthetic

cannabinoids and their combination products result in both acute and

long term public health and safety issues.34

Therefore, at the time of the December 9, 2013 controlled buy, XLR11 was designated as

a Schedule I controlled substance under federal law and had also been temporarily

designated as a Schedule I controlled substance under Iowa law.

After the Board adopted its emergency rule in July 2013, the Iowa legislature next

convened in its regular session on January 13, 2014. The legislature took action during

that regular session to permanently list XLR11 as a Schedule 1 controlled substance in

Iowa. 35 The new law, however, did not take effect until April 3, 2014, which was eighty

days after the legislature convened. The licensee contends that the legislature’s failure

to take action within the sixty day timeframe, coupled with the use of the word

“nullified” in Iowa Code section 124.201(4), means that the Pharmacy Board’s

temporary designation of XLR11 as a Schedule I controlled substance was retroactively

invalidated on March 14, 2014. The licensee further contends that as a result of this

twenty day delay, XLR11 did not constitute a controlled substance in Iowa prior to the

April 3, 2014 legislative enactment and therefore no finding can be made in this

administrative proceeding that the licensee’s employee sold a controlled substance on

December 9, 2013. The licensee has submitted a ruling from the Polk County District

Court that denied a Motion to Amend in a criminal prosecution involving the sale of

XLR11 based on this analysis of the statute. 36

34 Id. 35 2014 Iowa Acts ch. 1056, §2. 36 See Licensee Exhibit G, Ruling on the State’s Motion to Amend Trial Information, filed August 29, 2014

in Polk County District Court Case No. FECR274268, for the full legal analysis relied upon by the licensee.

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The local authority disagrees and asserts that the licensee’s analysis of Iowa Code

section 124.201(4) will lead to absurd results. The local authority urges the undersigned

to adopt the state’s analysis of Iowa Code section 124.201(4), as set forth in the state’s

Amended Application for Discretionary Review/Stay (FECR274268).37 Under the state’s

analysis in that criminal case, the general savings provision of Iowa Code section 4.13

would allow prosecutions for acts that were illegal at the time of their commission to

proceed, even if the applicable provision of law was subsequently subject to revision,

amendment or repeal.38

In addition, the local authority further asserts that because XLR11 was at all relevant

times designated as a controlled substance under federal law, the delivery and sale of

XLR11 on December 9, 2013 violated Iowa Code section 123.49(2)(j) because its sale was

illegal under 21 U.S.C. 841(a)(1).39 The licensee responds by asserting that the local

authority may not rely on federal law to establish XLR11 as a controlled substance and

to establish that its sale was illegal under Iowa Code section 123.49(2)(j) because the

Hearing Complaint failed to cite to any provisions of federal law. The licensee therefore

contends that it was not given proper notice of this issue.

Due process requires that parties to an administrative hearing shall be afforded “an

opportunity for hearing after reasonable notice in writing.”40 Similarly, the Iowa

Alcoholic Beverages Act provides that before the suspension, revocation or imposition

of a civil penalty, the license or permit holder shall be given “written notice and an

opportunity for a hearing.”41

Pursuant to Iowa Code section 17A.12, the written notice shall include:

a. A statement of the time, place and nature of the hearing.

As pointed out by the local authority, a district court ruling is not controlling law, and there is currently

an Amended Application for Discretionary Review/Stay of the ruling pending in the Iowa Supreme

Court. (See attachments to Local Authority’s Brief) 37 The Amended Application for Discretionary Review/Stay is attached to the Local Authority’s Brief. 38

Id. 39 21 U.S.C. §841(a)(1) makes it unlawful for any person, knowingly or intentionally, to manufacture,

distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled

substance. 40 Iowa Code section 17A.12(1); Freeland v. Employment Appeal Bd., 492 N.W.2d 193, 195 (Iowa 1992) 41 Iowa Code section 123.39(1)(2013); But see, Iowa Code section 17A.18 and 185 IAC 10.31, which allow

for emergency adjudicative proceedings.

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b. A statement of the legal authority and jurisdiction under which the

hearing is to be held.

c. A reference to the particular sections of the statutes and rules

involved.

d. A short and plain statement of the matters asserted. If the agency

or other party is unable to state the matters in detail at the time the notice

is served, the initial notice may be limited to a statement of the issues

involved. Thereafter upon application a more definite and detailed

statement shall be furnished.42

Ordinarily, all that need be shown to validate administrative proceedings against

persons who participate in a contested case hearing is that they had a reasonable

opportunity to know of the claims which affect them and to meet those claims.43

The notice provided to the licensee specifically incorporated the Hearing Complaint

and Request for Summary Suspension and the Summary Suspension Order.

Paragraphs (4) and (8) of the Hearing Complaint put the licensee on clear notice that

one of the allegations against it involved the delivery, possession with intent to deliver,

or possession of a Schedule I controlled substance on December 9, 2013, in violation of

Iowa Code sections 123.49(2)(j), 124.401(1) and 124.401(5). Iowa Code section

123.49(2)(j) clearly prohibits the licensee or its employees from knowingly engaging in

or permitting illegal activity on the licensed premises. This prohibition is stated in

broad terms, and it encompasses activities that are illegal under city ordinance, state

law, federal law or all three. A criminal prosecution and conviction, whether city, state

or federal, is not a prerequisite to imposing license sanctions for knowingly engaging in

illegal activity on the licensed premises, in violation of Iowa Code section 123.49(2)(j).44

The violation of 123.49(2)(j) by knowingly engaging in or permitting illegal activity may

be proven through the administrative hearing process.

The Hearing Complaint filed by the local authority did not specifically name XLR11 as

the controlled substance at issue in paragraph 8 and did not cite to the specific

provisions of either state or federal law that designated XLR11 as a Schedule I

controlled substance. Pursuant to Iowa Code section 17A.12(2)(d), the licensee could

have asked the local authority for a more detailed and definite statement as to the

42 Iowa Code section 17A.12(2)(2013). 43 Alfredo v. Iowa Racing and Gaming Commission, 555 N.W. 2d 827, 833 (Iowa 1996) (citing Fischer v. Iowa

State Commerce Comm’n, 368 N.W.2d 88, 94 (Iowa 1985)). 44 Iowa Code section 123.39(1)(c)(2013).

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specific statutes and rules relied upon by the legal authority to establish the

classification of XLR11 as a Schedule I controlled substance. It did not do so.

Moreover, Iowa Code section 124.201(4) and the Pharmacy Board’s statements in

connection with its adoption of the emergency rule make it clear that the state’s

designation of XLR11 as a Schedule I controlled substance was directly triggered by and

was based upon the federal government’s earlier designation of XLR11 as a Schedule I

controlled substance under federal law. The notice provided to the licensee clearly

states that the issue is whether the licensee or the licensee’s employees knowingly

engaged in or permitted illegal activity on the licensed premises. The notice clearly

apprised the licensee that the issues involved sales of imitation controlled substances

and a controlled substance at the licensed premises. The licensee was provided ample

opportunity to defend on the issue of whether XLR11 was properly and legally

classified as a Schedule I controlled substance. The licensee was not blind-sided nor

was it prejudiced by the local authority’s reliance upon both state law and federal law

in support of its contention that XLR11 was a Schedule I controlled substance at the

time of the December 9, 2013 sale.

Because XLR11 was clearly classified as a Schedule I controlled substance under federal

law on December 9, 2013, it is not necessary to address or attempt to resolve the

statutory interpretation issue that is currently pending before the Iowa Supreme Court

concerning the validity of Pharmacy Board’s temporary designation of XLR11 as a

controlled substance. The sale of products containing XLR11 was illegal under federal

law on December 9, 2013. The Alcoholic Beverages Division is authorized to sanction

licensees under Iowa Code section 123.49(2)(j) for knowing violations of local, state or

federal law.

III. Sanction

The local authority is requesting revocation of the liquor license as the appropriate

sanction for illegal drug trafficking on the licensed premises. The Division has

previously revoked a liquor license after finding that the licensee’s employee was

selling cocaine on the licensed premises.45 A license revocation has severe repercussions

not only for the licensee, but also for the licensee’s spouse and business associates, and

for the owner of the property where the business is located. Following a revocation, the

licensee, the licensee’s spouse, and certain business associates of the licensee may not be

issued a liquor control license, wine permit or beer permit for a period of two years

45 See Administrator’s Final Order, Hacienda Bar Limited Liability Company, d/b/a La Hacienda, Docket No. S-

2002-00012, issued February 17, 2003.

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from the date of revocation.46 In addition, the premises which had been covered by the

license may not be relicensed to anyone for a period of one year.47

The licensee asserts that the length of the emergency suspension of its license (now

more than 9 months) has been more than sufficient punishment given the nature of its

conduct. The licensee notes that the ceiling for license suspensions is one year, which

the licensee argues should be reserved for only the most egregious conduct. The

licensee contends that its conduct does not merit the most severe sanction because the

licensee:

believed that it was legal to sell these products;

was never told to stop selling synthetic cannabinoids or offered the opportunity

to enter into an agreement not to sell these products,48

fully cooperated with law enforcement subsequent to the suspension of its

license on March 4, 2014;

and its owners have not been criminally charged;

is willing to agree not to sell any synthetic cannabinoid products in the future.

The licensee asserts that it has suffered significant financial losses as a result of the

suspension and that any further suspension of its liquor license would irreparably harm

the licensee’s business.

The licensee’s owners and its employees did not testify at the hearing. The licensee’s

brief makes a number of factual assertions that were not considered in making the

decision in this case because those factual assertions were not supported by testimony

or other evidence at hearing. The unsupported factual assertions included assertions

that: (1) the licensee had a good faith belief that the particular products it was selling

were legal to sell; (2) the licensee paid sales tax and income tax on the money generated

from the sales of these products; (3) the licensee was aware that certain synthetic

46 Iowa Code section 123.40(2013). 47 Id. 48 The licensee submitted an Agreement (Exhibit C), which was signed by Abdul Islam as the owner of

Kartar, LLC d/b/a University Grocery, 2121 University Avenue, on October 2, 2013 and argued that this

licensee should have been given the same opportunity to enter into an agreement with the local authority

rather than have its license suspended. Exhibit C states, in part, that Abdul Islam agreed not to sell

prohibited Schedule I substances under Iowa Code 124.204 and “imitation controlled substances” as

defined in Iowa Code section 124A.2(4) , as well as other products. Although the licensee was allowed to

submit this exhibit, it was ultimately given no weight in making this decision. No other signature

appears on the Agreement, and it is unknown what circumstances led to the agreement or if the

agreement was accepted by the local authority.

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cannabinoids were illegal while others were not and that there was a fine line between

the two; (4) the sales representative who sold these products to the licensee represented

them to be legal; (5) the products were marketed as bath salts, incense, potpourri, plant

food, and fertilizer with a label stating that they were legal in the United States; and (6)

the products were kept behind the counter to prevent theft and not to conceal them

from law enforcement.

The licensee’s brief also asserts: (1) specific dollar amounts purporting to be the

licensee’s actual loss of revenue due to the license suspension, (2) that the store is not

self-sustaining without the revenue from the sale of liquor, (3) that keeping the store

open has exhausted the licensee’s savings, and (4) that Saquib Ali has a child due in

January and will have a difficult time supporting his family if the store is not turning a

profit.

There was no evidence in the record to support these factual assertions in the licensee’s

brief. It can be assumed that the licensee has suffered a significant loss of revenue as

a result of its inability to sell alcoholic beverages for a period of over eight months, but

there is no evidence in the record to support the specific dollar amounts listed in the

licensee’s brief.

The licensee also points to its Settlement Agreement (Exhibit A) with Polk County, in

which its owners, Saquib Ali and Muhammad Imran, along with others, agreed to

forfeit $295,760.19 in United States currency from several different bank accounts, a

2010 Kia, and two motorcycles, in return for the release of additional banking accounts

and vehicles. The Settlement Agreement was admitted as an exhibit at hearing. In its

brief, the licensee states that it recognized that the products should not be sold in the

store and sought to make things right by forfeiting the profits from the sales of the

products. The licensee suggests that this forfeiture should be considered in mitigation

of the administrative penalty while the local authority asserts that the forfeiture is

irrelevant to this administrative proceeding.

This Settlement Agreement was given some weight in considering the sanction to be

imposed. Administrative sanctions should be adequate to punish the violator given

the number and nature of the violations, to ensure that the violator does not benefit

financially from the violation, and to deter others from engaging in the same prohibited

behaviors. The fact that the licensee has agreed to forfeit a significant amount of cash

proceeds and property makes it more likely that the licensee has not benefitted

financially from the violations established at hearing. The amount of the forfeiture may

DIA No. 14ABD006

also serve as a deterrent to others who might otherwise consider selling similar

products containing synthetic cannabinoids.

Finally, the licensee argues that the length of the suspension as of the date of the

hearing was already significantly longer than the Division’s typical suspensions and is

more than double the suspension imposed on a store found to have sold to a minor for

the third time in three years. The licensee also cites to links for news articles out of

other states concerning the length of license suspensions in those states. Once again,

these news articles were not offered into the record at the time of the hearing and are

matters outside the record that were not considered in making this decision.

The licensee’s illegal sales of imitation controlled substances and XLR11, a Schedule I

controlled substance, are very serious violations of the Iowa Alcoholic Beverages Act

that threatened the public health, safety and welfare. An emergency suspension was

warranted in order to bring a halt to the use of the licensed premises for this illegal

activity, and a lengthy license suspension is clearly warranted given the number and

nature of the violations. Based on all of the circumstances presented, the violations

warrant the maximum license suspension of one (1) year but do not warrant revocation.

The primary reason for choosing the sanction of a one year suspension over the

revocation that was requested by the local authority is that the illegal sale of synthetic

cannabinoids (whether they are designated as controlled substances or as imitation

controlled substances) is an issue of first impression for the Alcoholic Beverages

Division.

ORDER

IT IS THEREFORE ORDERED, pursuant to Iowa Code section 123.39, that for

knowingly engaging in illegal activity on the licensed premises, Liquor License No. LE-

1163, issued to Shop N Save, LLC d/b/a Shop N. Save #1, shall be SUSPENDED for a

total period of one (1) year. The licensee shall receive full credit for the period of the

emergency suspension. Therefore the period of license suspension, which began on

Tuesday, March 4, 2014, shall continue and shall end on Tuesday, March 3, 2015 at 6:00

a.m. IT IS FURTHER ORDERED that no alcoholic liquor, wine, or beer may be sold,

dispensed or consumed on the premises during the period of suspension.

Pursuant to the administrative rules of the division, any adversely affected party may

appeal a proposed decision to the Administrator of the Alcoholic Beverages Division

within thirty (30) days after issuance of the proposed decision. In addition, the

Administrator may initiate review of a proposed decision on the Administrator's own

DIA No. 14ABD006

motion at any time within thirty (30) days following the issuance of a proposed

decision. 185 IAC 10.27(1) and (2).

Requests for review shall be sent to the Administrator of the Alcoholic Beverages

Division, 1918 S.E. Hulsizer, Ankeny, IA 50021. Unless otherwise ordered, each

appealing party may file exceptions and briefs within thirty (30) days of the notice of

appeal or order for review. Within thirty (30) days thereafter, any party may file a

responsive brief. The Administrator may shorten or extend the briefing period as

appropriate. The Administrator may resolve the appeal on the briefs or provide an

opportunity for oral argument. 185 IAC 10.27(6). The administrator may affirm,

reverse or modify the proposed decision.

A party who is adversely affected by the proposed decision shall not be deemed to have

exhausted administrative remedies unless the adversely affected party files a request

for review of the proposed decision within the time provided and the Administrator

has reviewed the proposed decision and has affirmed, reversed, or modified the

proposed decision.

Dated this 17th day of December , 2014.

Margaret LaMarche

Administrative Law Judge

Department of Inspections and Appeals

Administrative Hearings Division

Wallace State Office Building-Third Floor

Des Moines, IA 50319

CC: See Attached Mailing List

DIA No. 14ABD006

Copies to:

Margaret LaMarche

Administrative Law Judge

Depart. of Inspections & Appeals

Wallace State Office Building

Des Moines, Iowa 50319

John Lundquist

Assistant Attorney General

Department of Justice

Hoover State Office Building


Lt. Ritzman

ISP, District #1

260 N.W. 48th Place

Des Moines, Iowa 50313-2299

Diane Rauh

City Clerk - City Hall

400 Robert D Ray Drive


Interim Police Chief Douglas Harvey

Des Moines Police Dept.

25 E. 1st Street


Officer Rahn Bjornson

Des Moines Police Department

25 E. 1st Street


Douglas P. Philiph

Assistant City Attorney

Des Moines Police Dept.

25 E. 1st Street


Steve Bogle

Iowa Lottery

2323 Grand Avenue


Steven Mandernach

Social Gaming Unit

Lucas State Office Bldg.


Karen Freund

Licensing/Regulatory Bureau Chief

Iowa Alcoholic Beverages Division

1918 SE Hulsizer

Ankeny, Iowa 50021

Alfredo Parrish

Attorney at Law

2910 Grand Ave


state of iowa before the department of ... op n save 1...expert (kevin g. shanks) as a witness. mr....

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