Hip-hop mogul’s arrest highlights liquor license consequences


The June 22 arrest of  Sean “Diddy” Combs on three counts of assault with a deadly weapon has spotlighted the severe consequences of conviction for liquor licensees.  An article in The Observer reports that, if convicted, the legendary hip-hop artist may be forced to divest his holdings in Diageo, the world’s largest producer of spirits.   In almost every U.S. jurisdiction, principals in the manufacture or sale of alcohol are required to hold licenses that are generally not available to people who have a felony conviction. While Combs has had a number of high-profile brushes with the law, he’s never been convicted of a felony.

In 2007, in partnership with Diageo, Mr. Combs agreed to help develop the Ciroc vodka brand for a 50 percent share of the profits. Reuters recently reported that since 2007, the company had seen a “40-fold rise in annual sales volumes for the brand’s products.” (That translates to nearly 2 Million cases a year.)

Additional Diddy deals came in January 2014, when Diageo and Mr. Combs partnered to acquire what Forbes magazine described as “prestige tequila brand DeLeón.” As Forbes said at the time, “Both sides invested cash to make the purchase, and Diddy, via his newly-formed Combs Wine & Spirits, will be an equal partner with Diageo in equity terms.”

The Observer notes that, quite apart from legal restrictions on his ability to retain his business licenses, “there’s the question of whether Diageo, the eighth largest company on the London Stock Exchange, will have concerns about a felon as a partner.”

The assault charges arose from an episode involving Mr. Combs’ attack on his son Justin’s UCLA football coach:

This attack—according to TMZ, which first reported the arrest, the victim was UCLA strength and conditioning coach Sal Alosi, who was screaming at Diddy’s son Justin Combs, who plays defensive back for the Bruins, as Mr. Combs watched from the sidelines; the alleged assault occurred when the mogul confronted the coach in an office and attacked him with a kettlebell—could prove uncommonly costly even by the standards of hip-hop artists in trouble.

Mr. Combs is involved in a number of business ventures beyond the music world, including fashion lines, restaurants, and movie production.  “But none of those businesses face the same legal and regulatory scrutiny that makers of spirits must endure and many questions pertain to whether Mr. Combs will be able to maintain a liquor license if he’s convicted of a felony.”

The Alcohol and Tobacco Tax and Trade Bureau, a bureau of the United States Department of the Treasury, requires manufacturers and producers of alcohol to apply for a permit. According to section §1.24 of the federal code, “such person (or in case of a corporation, any of its officers, directors, or principal stockholders) has not, within five years prior to the date of application, been convicted of a felony under Federal or State law, and has not, within three years prior to date of application, been convicted of a misdemeanor under any federal law relating to liquor, including the taxation thereof.”

In addition to federal licensing issues, state laws generally restrict a convicted individual from owning or even working in alcohol manufacturing or sales:

In California, for example, Business and Professions Code Section 23952 — Felony and law violation, anyone involved in the “manufacture, sale, or distribution of alcoholic beverages [must show that] …the applicant has not been convicted of a felony…” In Michigan, felons cannot own a Michigan liquor license, and in Oklahoma, “To be eligible for a liquor license, you must be pardoned on all felonies…” In New York, according to the State Liquor Authority, “A convicted felon cannot be employed by a licensed manufacturer or wholesaler.”

. . . . .According to the Louisiana State website, “Any person who, as a business, manufactures, blends, rectifies, distills, processes, imports, stores, uses, handles, holds, sells, offers for sale, solicits orders for the sale of, distributes, delivers, serves, or transports any alcoholic beverages in the state or engages in any business transaction relating to any such alcoholic beverages must first obtain the appropriate alcoholic beverage permit.” The Cajun site then explains that “Owners or backers of an alcohol company must submit for a permit—and the site then goes on to explain that includes anyone who owns more than 5 percent of an alcohol company.”

The Observer article points out that another high profile celebrity has recently encountered conviction-related business license restrictions.  As noted on this site several months ago, Mark Wahlburg is seeking a pardon of a 25-year-old felony assault conviction in order to obtain a concessionaire’s license for Wahlburgers, the restaurant business he owns with his brothers.  A fresh felony conviction is likely to have even more serious ramifications for Mr. Combs’ partnership with Diageo:

If a 25-year-old felony—even an awful one like the racially motivated attack Mr. Wahlberg was convicted of—has proven a hurdle to hamburgers, then a brand-new accusation lobbed at an alcohol merchant could be expected to pose very tough hurdles for the music impresario.