By: Brad Berkman, Esq. and Hector Chichoni, Esq.
Few lifestyle industries in the U.S. are as exciting as hospitality and alcoholic beverages. A related truism is that both domestic and foreign observers do not realize how complex the alcohol beverage regulatory landscape is.
As a primer, the industry’s foundational element is the three-tier system. That system creates the entire business model that its stakeholders operate within. The three tiers within the industry paradigm include: 1) manufacturers (and importers), 2) wholesalers or distributors and 3) retailers, such as bars, restaurants, and hotels.
That said, for the uninitiated reader, there is also a unique and related legal concept in U.S. beverage law, known as tied-house evil. In abridged form, this concept mandates, absent an existing exception, that manufacturers, importers and distributors of alcoholic beverages are not permitted to have a direct or indirect ownership interest in a retail seller of alcohol. These writers will address this concept in relation to the E-2 further below in this article.
For the foreign national desiring to come to the U.S. under an E-2 visa, the alcohol beverage industry and its three tiers are replete with business opportunities.
What Exactly is an E-2 Visa
An E-2 visa is a non-immigrant visa for people from treaty countries who make a substantial monetary investment in the U.S. To qualify, investors may either start a new business, purchase an existing one or invest in an already existing franchise.
Investors can also bring essential and other managerial or supervisory employees of the same nationality on an E-2 visa to assist in business operations.
A detailed business plan is crucial for demonstrating the viability and growth potential of the business, how the business will be managed, potential revenue generation, and compliance with all relevant regulations should be included. As noted above, the alcohol beverage industry is regulation-intensive but completely manageable with experienced guidance. Industry consultants and alcohol beverage attorneys are available to provide expert advice.
In addition, to qualify for an E-2 visa, an individual investor must meet the following requirements:
- Investor is a citizen of an E-2 treaty country, of which there are over 60
- Investor has invested or is in the process of investing in a U.S. business
- The business is real and active
- The investment is substantial
- The investment funds must be at risk
- Business is not marginal
- The investor is in a position to develop and direct the business
- The investor intends to depart the United States when the E-2 status ends
E-2, the Business Plan and the Industry Tier
A detailed business plan is a prerequisite. Creating the right business plan for one of the three tiers requires research and knowledge of the industry and the tier under consideration. Operating a profitable alcohol beverage importation company, winery or brewery requires a set of skills and operational structures and objectives different from those required to operate a wine/beer and spirits distribution company or an upscale wine/beer and spirits retail location. Ideally, the investor will have experience in their home country in a related business, but if not, the landscape is more than manageable for the entrepreneurial investor.
One of the most essential elements, regardless of the tier, is that the business must be real and active. To be active, the business must produce and sell goods or services.
Passive businesses do not qualify for an E-2 visa. Investments in land, stocks, and bonds are passive holdings that rely on asset appreciation or passive income generation without active management and are not qualifying investments.
All three tiers of the alcohol industry business model are considered active because they rely on the sale of products (beer, wine, spirits) to generate revenue. It also requires active involvement in business operations from management to purchasing and managing inventory, maintaining the premises, marketing the product or venue and making the final sale to either other businesses or consumers.
For foreign producers of alcoholic beverages from a treaty country, the E-2 Visa offers a unique opportunity in the manufacturing, importation, and distribution tiers. But now let’s revisit the concept of tied-house evil. As a refresh, this concept mandates, absent an existing exception, manufacturers, importers, and distributors of alcoholic beverages may not legally have a direct or indirect ownership interest in a retail seller of alcohol. The bottom line is that investors in the industry, as a general rule, should pick one tier and not attempt to diverge from it (though a good alcohol beverage may be able to assist in crafting an operational model that crosses and touches more than one tier).
As an additional note, regardless of the tier, licensing and permitting of some type will almost always be required from the federal and/or state governments. Importation, manufacturing, and distribution licenses can require a complex application process, but the costs associated with those licenses are almost always less than the fees and costs associated with the retail tier licenses.
Wine/Spirits/Liquor Store Investments
Retail liquor stores offer a unique opportunity for investors who desire an E-2 visa. The cost to open a retail wine, spirits and beer store can vary substantially between locations, the type of business and the license type required. Generally, $100,000 to $150,000 is required if the location is in a state or city with an average cost of living. If the investor chooses to operate in a city with a higher cost of living, such as Miami, New York or Los Angeles, one can expect to pay several times that cost to open a retail location, with the license alone potentially costing over $250,000.00.
More than Marginal E-2 Business
If an investor wants to get an E-2 Visa by investing in a business in the alcohol beverage industry requiring a license, the business must be more than marginal. In other words, the business needs to generate enough income to support more than just the investor and their family.
This is determined by the business’s present or future capacity to generate high cash flow, hire U.S. employees and make a significant contribution to the U.S. economy within five years of starting the business.
In the case of retail liquor stores, it is relatively easy to show the business is more than marginal. Liquor stores can be highly profitable. For example, liquor stores listed for sale in Florida generate between $200,000 and $600,000 in cash flow to the owner.
How To Open a Liquor Store for E-2 Visa
Key considerations for a business requiring a retail liquor license are compliance with state and local laws and should include:
- Finding a suitable location in the city and negotiating a lease with the landlord. Prior to the signing of a lease, it is important to confirm that the location is properly zoned for a liquor store and the placement of the license type before leasing the premises.
- There are different liquor licenses in the state of Florida, depending on desired operations and commodity sales. The Florida Department of Business and Professional Regulation (DBPR) issues liquor licenses through the Division of Alcoholic Beverage and Tobacco and license types and availability must be analyzed.
- For the operation of a traditional liquor store in Miami selling wine, beer, and spirits, a license type referred to as a Quota license is needed. These licenses are purchased on the open market for fair market value, requiring significant investment. Locating a seller of a Quota license and arranging for its purchase is a complex process, much like buying real estate. Purchasing the Quota license should be completed in the early stages of the process.
- You will also need to obtain local operating permits, such as the certificate of use (CU) for the liquor store to operate at a particular location.
- Other, more complex local administrative procedures may be required, such as a conditional use permit or variance. Research, preparation and effective management of the process are essential.
If one chooses to proceed at the retail level, one can submit the E-2 visa application to the relevant U.S. consulate after the liquor license has been applied for. By the time the US Consulate schedules the interview, you will likely receive the final answer from the regulatory authorities and show evidence of progress at the interview.
Both the E-2 visa process and the regulatory and legal requirements of the alcohol beverage industry and complex. The benefits, however, of both can be undeniably rewarding, achieving both financial goals and a visa status for the investor.
Consulting with the immigration and alcohol beverage lawyer to ensure compliance, avoidance of liability and the specific timing, aligns with your situation, will only add to the likelihood of success.
