Law Offices of John P. Connell, P.C.: In a decision dated November 20, 2013, the Massachusetts Alcoholic Beverages Control Commission (“ABCC”) held that “de minimis” amounts of money acquired through online “crowdfunding” websites need not be disclosed as a source of funds within an applicant’s state license application. This decision followed a September 4, 2013 hearing held at the ABCC at which the Commission determined that an application for a Farmer-Winery license could be approved despite the applicant’s nondisclosure of donors who contributed funds to its business via Kickstarter, a “crowdfunding” website that provides businesses and individuals a platform to raise money through anonymous donations.
Online “crowdfunding” is a growing trend in the alcoholic beverage industry. By allowing business projects to set a finance goal and by providing an opportunity for individuals to “pledge” or donate a chosen amount of money towards those goals, “crowdfunding” websites provide an avenue for entrepreneurs to finance an otherwise expensive start-up process for their businesses. Many emerging breweries and other industry players have caught on to these benefits that “crowdfunding” websites offer to their potential new businesses.
Yet the lack of established regulation in regard to the use of these “crowdfunding” websites in the alcoholic beverage industry once caused a gray-area in the law governing the state licensing process. Generally, in Massachusetts, an applicant for a license to manufacture alcoholic beverages needs to disclose the personal information of each and every person who has made an investment in the applicant’s business. Ordinarily, this disclosure requirement applies to an applicant’s source of funds even if those funds were given as a gift. This means that applicants choosing to use Kickstarter to raise money for their businesses would typically be required to provide the identity of, and personal and financial information for, every donator contributing funds to their potential businesses.
The November 20, 2013 ABCC decision In re: Homestead Hard Cider, LLC d/b/a Homestead Hard Cider, however, is significant in that it holds that such disclosure is not necessary for the approval of a state license application. The ABCC determined that due to the “de minimis” nature of the funds acquired through donors on Kickstarter, which ranged from amounts of $5.00 to $500.00, the disclosure of those donors’ identities and the amount of their contributions were not required for the approval of the applicant’s Farmer-Winery license application.
The implication of this ABCC decision is that breweries and other businesses in the industry may fund their projects with seemingly infinite donations of small amounts raised through online “crowdfunding,” without having to worry about obtaining the personal and financial information of individuals contributing via the “crowdfunding” website. For this reason, license applicants using online “crowdfunding” constitute a kind of “exception” to the general rule requiring disclosure of all sources of an applicant’s funds on its state license application. It remains to be seen, however, if this “exception” will extend to larger donations made on “crowdfunding” websites. According to Kickstarter’s website, the maximum amount any donor may make to a business project in the U.S. is $10,000. Would the ABCC consider such a donation made to a potential brewery “de minimis” or would disclosure of the donation then be required on the brewer’s license application?
CONTRIBUTED BY COURTNEY N. McGEE
© Law Offices of John P. Connell, P.C., 2014.