Regulating Inter-Tier Investing & Licensing

Crowdfunding has become a popular method for entrepreneurs to raise funds for their businesses, but it can be difficult to invest in industries like alcohol due to its 3-tier system and tied house regulations.  These complications arise when a party with an interest in 1 tier invests in another tier.  With the SEC’s crowdfunding regulations released this past May, more cases where investments have been denied are occurring.  On a larger scale, inter-tier licensing problems are also present. In Texas, “an application for licensure of a convenience store chain was denied because the Mexican owner of the chain has a 20% interest in Heineken in Europe.”  In the same state, McLane’s, a national food distributor, was denied a wholesale license because its shareholder, Berkshire Hathaway, “has ownership interests in public investment funds that own shares in major retailers.”  While cases vary due to state regulations, there is no doubt that crowdfunding and investments are being regulated across all 3 tiers of the system.

Source: Hinman & Carmichael LLP