By: Brad Berkman and Louis Terminello, Greenspoon Marder
As likely every reader of this article knows, some type of federal and state permit(s) is required to engage in any aspect of the alcohol beverage industry. Suppliers of beverage alcohol, also known by the term of art, Industry Members, are required to hold either production permits and/or importer/wholesaler permits. For the purpose of this article and this publication, wineries, brand owners and distributors should be considered Industry Members, however, the discussion which follows is certainly applicable to virtually all licensees and/or permittees.
The Alcohol Tax and Trade Bureau or TTB, part of the US Treasury Department is tasked with the administration and issuance of federal production permits (wineries, distilleries, breweries and importers), including wholesaler permits, while state alcohol regulatory agencies are tasked with the issuance of the state(s) level license equivalents, among other types of licensees (including vendors).
Initial licensure can be a time-consuming process. Regulatory agencies, among other things, will look at certain operational aspects of the soon-to-be licensee/permittee as well as the qualifications and issues of impairment for the individual applicant. Many of the readers are likely familiar with the processes and procedures for initial licensure. What many Industry Members are unaware of, however, are the changes after initial licensure qualification that should or must be reported to the regulatory agencies. This article will focus on some of the important reporting requirements that affect licensure after initial qualification and related concerns.
Issues of Timing: As a quick note, those changes which require reporting should be done so in a timely manner. Failure to report, whether at the state or federal level will be highly problematic.
As a general rule, at the Federal level, changes to the legally licensed entity must be reported within thirty (30) days from the date of change. All federally licensed Industry Members should take note of that thirty (30) day rule. If changes are not reported within that timeframe, federal licensure becomes null and void by operation of law. Continued operation in this instance is problematic and exposes the once licensed entity to administrative action and financial penalty if unlicensed operations continue.
Perhaps the most important area that required reporting, whether it be at the federal or state(s) level, is any change of ownership issues. Changes usually take two forms which are generally referred to as a change in control or change in proprietorship.
Change in Control: As TTB defines this “a change in actual or legal control occurs when there are changes in stock ownership, LLC membership, or possibly major changes in the corporate officers or directors of a corporation. Here, the legal entity which operated the business in the past continues to operate the business. In other words, the same legal entity remains in existence and continues to operate the business in question. Only the shareholders or percentage of ownership amongst shareholders shifts amongst the existing shareholders. All changes of control must be reported to TTB.
For wineries, TTB and Federal regulations require an amended application to Establish and Operate Winery be submitted within 30 days of the change of control, as mentioned above.
As for Basic Permits, these are not transferable by reason of a change in control of the company. The Basic Permit will automatically terminate unless, within 30 days of the change, an application for a new Basic Permit is filed with TTB. If an application is filed within the required 30-day period, the outstanding Basic Permit will remain in effect until TTB takes final action on the new application.
Change in Proprietorship: A change in proprietorship occurs when there is a change in the entity that owns and operates the business. It is synonymous with a change in ownership, or it may be due to a change of entity type. The entity which owned the business no longer operates or owns the operations at the designated location.
In the change of proprietorship scenario, the new owner may continue to operate, if, within 30 days of the change, an application is filed for a new Basic Permit. The outstanding Basic Permit will remain in effect until such time as TTB takes action and issues a new permit.
If a change in proprietorship occurs prior to the filing and approval of the new winery registration or if the Basic Permit application is not filed within the required 30-day period, all regulated operations must stop until approval is granted by TTB.
Clearly, from an operational perspective and at the federal level, untimely reporting will have a deleterious effect on operations. Advanced planning is essential.
State Licensing: As with federal licensure, changes in control and/or changes in proprietorship must be reported to state regulatory authorities as well. Using the State of Florida as an example, where this writer resides, as a general rule, a change of proprietorship requires a new application process with original qualifications being made by the disclosed parties. The state will issue a new license to the new operator under this scenario.
Changes in control, even of a de minimis nature must be reported on a proscribed form within a proscribed timeframe with each new directly interested party qualifying. Once again, using Florida as an example for illustration purposes, reports in a change of control must be submitted within 10 days from the date of change. The original underlying license remains in effect with the interested parties disclosed on the existing license.
It is very important to note that state(s) reporting requirements vary significantly by state. Some states require reporting prior to the occurrence of any change, while others may do so after the change in control or proprietorship. A careful plan must be developed in advance of any change (for example new investors coming on board or in particular in the merger or acquisition setting). This general caveat applies to Industry Members and Vendors (retailers) alike. Further, some states reporting requirements after initial qualification are quite detailed (some might say, onerous). As a rule of thumb, plan, plan, plan in advance.
Other Considerations: Although change in control and change of proprietorships are the two most common scenarios that require timely reporting, there are other areas for Industry Members, and in particular wineries, that must be reported. Though not wholly exhaustive, below is a list of operational changes, taken from TTB, that require reporting. The licensee should make specific inquiries with each state(s) regulatory agency for their reporting requirements.
• Change in Premise Location
• Change in Mailing Address
• Add / Remove Signing Authority
• Add / Remove Power of Attorney
• Change in Business Name
• Add/ Remove Variance or Alternate Method
• Add / Remove Change in Alternation of Wine Premises
• Add/Remove Wine Alternation of Proprietor
• Add/Remove Trade Name
• Add/Remove Non-Contiguous Extension of Wine Premises
• Bond- Superseding/Strengthening/Adding/Terminating
• Change in Bonded Wine Premises
• Change in Winery Premises Location
• Termination of Business
This article leans heavily into the requirements for Industry Members as defined, with an emphasis on wineries. The reader should bear in mind that regardless of the tier of the industry it is operating in, it is virtually a certainty that reporting changes after initial qualification will be required. Proper planning and the execution of these reporting requirements, particularly in the larger M&A setting, is essential.
