BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 796|
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CONSENT
Bill No: SB 796
Author: Committee on Governmental Organization
Introduced:3/12/15
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE: 10-0, 4/14/15
AYES: Hall, Berryhill, Block, Gaines, Galgiani, Hernandez,
Hill, Lara, McGuire, Vidak
NO VOTE RECORDED: Hueso
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Alcoholic beverage licenses: private equity funds
SOURCE: Author
DIGEST: This bill creates an exception to the current
requirement in the Alcoholic Beverage Control (ABC) Act that the
Department of ABC must identify and potentially qualify any
person or entity who is an investor in a private equity fund, as
defined, that holds any interest in an alcoholic beverage
license, subject to certain conditions.
ANALYSIS:
Existing law:
1)Establishes the Department of ABC and grants it exclusive
authority to administer the provisions of the ABC Act in
accordance with laws enacted by the Legislature. This
involves licensing individuals and businesses associated with
the manufacture, importation and sale of alcoholic beverages
in this state and the collection of license fees for this
purpose.
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2)Requires the Department of ABC, upon receipt of an application
for a license or for a transfer of a license and the
applicable fee, to make a thorough investigation to determine
whether the applicant and the premises for which a license is
applied qualify for a license and whether the provisions of
the ABC Act have been complied with. (B & P Code Section
23958)
3)Requires any corporation, limited partnership, or limited
liability company holding a license to manufacture, distill,
rectify, or sell alcoholic beverages to report any change in
the ownership, management, or control of the entity to the
Department of ABC. (B & P Code Sections 23405, 23405.1, and
23405.2)
4)Extends the reporting requirements referenced in item #3 above
to any corporation, limited partnership, or limited liability
company that holds, directly or indirectly, 10% or more of the
ownership of a license to manufacture, distill, rectify, or
sell alcoholic beverages. (B & P Code Section 23405.3)
This bill:
1)Specifies that the Department of ABC is not required to
qualify for a license a person who is an investor in a private
equity fund, as defined, that holds an interest in an
alcoholic beverage license, provided all of the following
conditions are satisfied:
a) The private equity fund's interest in the license is
limited to a passive investment, so that neither the
private equity fund nor any manager, employee, or agent of
the private equity fund has any involvement in, or control
over, the management of the licensed business or of the
license.
b) The private equity fund advisors are registered under
the federal Investment Advisors Act of 1940, and are
subject to, and comply with, specified federal investment
advisor code of ethics regulations.
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c) An investor shall not, directly or indirectly, hold more
than 10% interest in the private equity fund.
d) An investor in the private equity fund shall not have
any control, directly or indirectly, over the investment
decisions of the private equity fund.
2)Defines "private equity fund" as an investment company that
makes investments in equity or debt securities of another
company that does not provide investors with redemption rights
in the ordinary course. Also, makes it explicit that a
private equity fund does not include a hedge fund, liquidity
fund, real estate fund, securitized asset fund, or venture
capital fund.
3)Authorizes the Department of ABC to require the manager of the
private equity fund to execute an affidavit confirming
compliance with the requirements of this new body of law.
4)Specifies that the provisions of this bill are not intended to
allow a person, by reason of his/her investment in a private
equity fund, to hold an interest in a license issued by the
Department of ABC if that interest is not otherwise permitted
under the provisions of this bill.
Background
The enactment of the 21st Amendment to the U.S. Constitution in
1933 repealed the 18th Amendment and ended the era of
Prohibition. Accordingly, states were granted the authority to
establish alcoholic beverage laws and administrative structures
to regulate the sale and distribution of alcoholic beverages.
Currently, the Department of ABC is required to make a thorough
investigation of all applicants for a license, which includes
among many things, identifying all individuals who have an
interest regardless of percentage interest. The Department of
ABC is also required to qualify and obtain fingerprints for all
individuals who hold more than 10% or more interest in the
license. The only exception to that qualification requirement
is for publicly traded companies [B & P Code Section 23405 (c)].
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This bill allows an exception to the current requirement in the
ABC Act that the Department of ABC must identify and potentially
qualify any person or entity who is an investor in a private
equity fund that holds any interest in an alcohol license.
Private equity funds tend to be passive investments and often
times the individual investors are not aware of specific
investments made by the fund. Investors in private equity funds
do not have day to day involvement or influence over the
decisions and operations of the Department of ABC licensed
business. In turn, identifying and qualifying these investors
has become a cumbersome and burdensome process for the
Department of ABC with no advancement of the original intent of
the law. The Department of ABC has heard anecdotal information
that this onerous requirement discourages investors and
unnecessarily prolongs the Department of ABC licensing process.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT: (Verified 4/27/15)
None received
OPPOSITION: (Verified 4/27/15)
None received
Prepared by:Arthur Terzakis / G.O. / (916) 651-1530
4/29/15 16:18:41
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