Private Equity Across Tiers in Florida: How to Invest Without Blowing up the Three Tier System

Florida’s alcoholic beverage laws make it hard for private equity (PE) investors to “own a little bit of everything” across suppliers, distributors, and retailers. Florida is a three-tier state, and the point of the system is separation: manufacturers sell to distributors, distributors sell to vendors, and vendors buy only from distributors. The Florida Division of Alcoholic Beverages & Tobacco (ABT) describes the system in exactly those terms.

That separation is enforced through licensing. ABT will not issue (or may later challenge) a license if the applicant structure creates a direct violation (the same entity doing multiple tiers) or an indirect violation (the “wrong” people are involved behind the scenes).

This post explains (1) the core “three tiers” problem for PE, (2) what you typically must disclose to ABT, and (3) one possible structure to reduce the risk when a fund has investments (or plans to invest) in more than one tier.

The “Three Tiers” problem for PE Investors

The obvious issue: direct cross-ownership

At the simplest level, Florida law generally separates manufacturers (tier 1), distributors/wholesalers (tier 2), and vendors/retailers (tier 3), and prohibits a person or company from simultaneously engaging in more than one tier unless a specific exception applies.

The harder issue: indirect interests and attribution

Most PE “conflicts” aren’t direct. They are indirect—through funds, management companies, officers/directors, side letters, lender rights, profit shares, or “control-like” rights.

ABT licensing rules require the applicant to identify “Interested Parties,” which include officers, directors, owners, and others with a direct or indirect interest. Florida Statutes section 561.17 provides guidance: ABT cares about (among other things) who has a right to participate in control of alcohol sales, who has a security interest in the license, or who has a right to a percentage of proceeds.

Florida Statutes section 561.22 then adds “attribution” concepts—meaning ABT may treat certain relationships (officer/director overlap, parent/subsidiary and “brother/sister” structures, and certain affiliation/control arrangements) as tying the tiers together.

A practical example of how ABT thinks about this is ABT’s Burger King declaratory statement (In re BK Whopper Bar, LLC). ABT focused on individuals who were investors/directors in a parent company of a Florida vendor and also in a major manufacturer group, and ABT concluded the vendor license was prohibited based on the three-tier analysis.

The “tied house” overlay (especially for retailer investments)

Separate from tier separation, Florida’s “Tied House Evil” law generally prohibits manufacturers/distributors/importers and related “suppliers” from having a direct or indirect financial interest in a Florida vendor and from providing certain things of value to vendors (with narrow exceptions).

For PE, this means you must think about two tracks at the same time:

Whether the ownership/control stack violates tier separation; and
Whether the economics or assistance to retailers creates tied-house concerns.

What Must be Disclosed to ABT (and Why It Matters)

ABT enforces tier separation primarily through licensing and required disclosures. The short version: if ABT thinks a person or entity “counts” as having an interest, ABT will want them disclosed and qualified.

Common disclosure buckets include:

Interested Parties (broad)

For each applicant, “Interested Parties” include officers, owners (members/shareholders), directors, and anyone with a direct or indirect interest. Section 561.17 specifically points to people/entities with control rights, security interests in the license, or a right to a percentage of proceeds (subject to exceptions).

Related Parties (higher scrutiny)

A subset of Interested Parties—called “Related Parties”—have extra requirements (including affidavits and, in many cases, fingerprints). ABT’s Related Party list includes (among other categories) individuals who manage a licensed premises under certain arrangements, all general partners, stockholders owning more than 0.5% (with exceptions), and directors/officers (with exceptions).

Practical takeaways for PE

ABT cares about substance, not labels. If your “investor protections” look like operational control, ABT may treat them as control.
Overlap of people across tier investments is a flashing red light (Burger King is the cautionary tale).
You should assume ABT will ask: who can influence pricing, product placement, distribution choices, and retailer relationships?

One Possible Structure: Operator-Control + Passive Preferred + Firewall Fund

Below is a plain-English summary of one possible approach. This is not the only structure—and it is not appropriate in all circumstances—but it shows the kinds of “separation” concepts that can help.

The core idea

Keep the licensed operator/founder in real voting and operational control, and make the PE capital look and behave like passive money with limited, investment-protection rights—while building documentary and information barriers to reduce cross-tier contamination.

The moving parts (high level)

HoldCo with two classes of stock. A new Florida HoldCo is formed. The operator keeps 100% of the voting common stock and remains sole director and CEO. The investor buys non-voting preferred stock.
Preferred stock is designed to be “economic, not operational.” The preferred has dividend/liquidation preference and narrow veto rights tied to protecting the preference (for example: blocking issuance of senior securities, changes to preferred terms, voluntary dissolution, or a sale where the preferred would not be paid). It does not vote, appoint directors, hire/fire, approve budgets, select distributors, set pricing, or access deep operational info beyond financial reporting.
A feeder vehicle isolates the investment from the main fund. The main fund invests as a limited partner into a single-purpose “Feeder Fund” that holds the preferred stock, and a designated GP entity (GP1) controls Feeder Fund decisions. The goal is to keep other fund principals (who may handle distributor/retailer deals) away from the supplier investment.
Internal firewalls and economic segregation. Amendments and policies (a) exclude conflicted principals from decision-making and information, (b) prevent sharing operational info across tier-focused teams, and (c) address who economically benefits from the investment.
Independent compliance monitoring. An independent compliance officer audits information barriers and reviews any transactions that could look like coordination across tiers.