20 October 2010

It's Just Business

A local couple want to buy a caf矇. A grocer wants to acquire a few more stores. A restauranteur wants to purchase several brewpubs. A venture capitalist wants to buy a vineyard and sell some wine. Simple, right? Negotiate a contract for the sale, sign on the dotted line, and accomplish the goal.

What should be simple business transactions become complicated in the alcohol industry. In all the scenarios above, the new owners must be approved by the appropriate alcoholic beverage control board (and the TTB in the case of manufacturers and wholesalers) before they can take over the business. New owners must independently qualify for a license before any alcohol is produced under their ownership. This means going through the initial application process for an alcohol license (including detailed background checks; personal, business, and bank references; and financial statements).

One of the most often overlooked items in business acquisitions is the alcohol license. By the time anyone remembers it, closing is days away. Unfortunately, the new owners will be operating illegally without their own license, and subject to increased taxes and large fines. In the case of the retail license, only state approval is necessary. Manufacturers of alcohol, on the other hand, need both TTB and state approval. This can lead to last minute price re-negotiations and complicated service agreements.

The regulatory maze of alcohol control is a gremlin in alcohol industry business transactions. A brewer unsatisfied with a distributor’s performance cannot simply fire the distributor. A chef cannot simply decide to serve homemade liqueurs. A conglomerate cannot simply purchase a company that owns hotels and restaurants. We will delve into each of the scenarios described above in the coming weeks.

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