Value of a cannabis license varies with type, market age

A cannabis business license in one jurisdiction can be a golden ticket to substantial profits; in another market, the same license might be worth little more than the paper it’s printed on.

In established markets such as California, Colorado and Oregon, where adult-use sales have been legal for a decade, marijuana business licenses are less valuable than they are in emerging markets such as Florida or Illinois, said Colin Ferrian, portfolio manager at San Francisco-based cannabis investment firm Poseidon Investment Management.

Meanwhile, sellers in emerging markets often perceive their licenses as being more valuable than what the market dictates.

For example, the asking price for a cannabis retail license in Illinois, which launched recreational sales in 2020, is $2 million, but the market value is $1.5 million, according to data provided by Poseidon.

But in Colorado’s established market, the asking price and market value are the same, at roughly $50,000.

“Often, someone will come out with an asking price that’s at a premium to what the market price is - the seller has higher expectations,” Ferrian said.

"As you get further along in market maturity, the values between asking and market get closer and closer until they’re nearly the same.”

Ferrian said it’s more expensive to get into the marijuana industry in an emerging market than it is to step into an existing business in a state where recreational cannabis has been legal for more than five years.

“In a mature market, you can generally buy a business for a reasonable value,” Ferrian said.

“It’s more challenging to buy in emerging markets; licenses in emerging markets are rarely sold at a discount.

“You have to do a lot of things right to make your money back.”

Some cannabis licenses more valuable

Attorney Amber Lengacher, founder and CEO of Colorado-based consulting firm Purple Circle, described some markets as having "empty licenses" that are worthless - especially in states that divvy up permits according to categories such as cultivation, retail and transportation.

“We’re seeing the early signs of that happening in several states,” Lengacher said.

In Illinois, for example, transporters had to complete a complicated application process to win a license, which ultimately had an initial cost of $15,000 and $10,000 renewal fee.

But because the state didn’t require third-party transportation of marijuana, most operators secured their own licenses, leaving entrepreneurs who built businesses around those transportation permits without any clients.

“There are over 200 transportation licensees, but many already shut their doors because the business isn’t viable,” Lengacher said.

She added that Colorado is experiencing similar problems with transportation licenses: Each state municipality must approve delivery, and only a handful of towns have done so.

The transporters must partner with a marijuana retailer to deliver products, but few of them currently offer delivery.

One that does - Colorado Harvest Co. - recently announced it would cease delivery after Aug. 22.

“It’s cheaper for customers to walk in the door than to pay the extra to participate in delivery,” Lengacher said.

Vertically integrated cannabis licenses

But in places such as Florida, home to 900,000 medical marijuana patients, licenses are incredibly valuable, Lengacher said.

In addition to being allowed to open an unlimited number of dispensaries, Florida license holders can build vertically integrated companies because the state allows them to grow, manufacture and sell marijuana under a single license.

The number of active vertically integrated cannabis licenses, which blend multiple business activities under one permit, experienced a 2% increase in the U.S. during the second quarter of 2024, according to CRB Monitor’s recent licensing report.

Approved and pending licenses surged 200% during the same period - especially in anticipation of Florida’s potential adult-use market.

More low-value licenses coming?

At the other end of the spectrum is Minnesota, which has a dozen different license types for would-be business owners to choose from ahead of the statewide adult-use marijuana market launch expected next spring.

But cannabis attorney Lengacher questions whether some of those licenses have any value.

If cultivators and processors can sell their products directly to retailers, she said, a wholesale license likely doesn’t have much value.

Lengacher said part of the problem is that new markets generally are created by lawmakers, who must ensure the supply chain works for everyone.

“When it’s a brand-new market, you don’t have the data to look and see what the market share is,” she said.

“It’s more challenging to do that with new industries.”

Lengacher strives to ensure her clients understand the markets they’re entering in terms of anticipated profits and revenue.

She also wants them to know that they’re likely to spend more money than they will make for the foreseeable future.

“This can ruin a family,” she said. “I know families who have invested everything into these empty licenses and have nothing to show for it.

“Just because the state pops up a license doesn’t mean it’s worth anything.”

Which cannabis licenses hold their value?

Chanda Macias, CEO of National Holistic Healing Center in Washington, D.C., said licenses are holding their value in states where recreational marijuana is not yet available.

“Alabama still has value because it’s not operational,” she said.

“Texas will be highly desired because it’s a restricted medical market.”

Kentucky is launching a medical marijuana market with limited licenses, and South Carolina and Tennessee are trying to start similar programs - and permits in all of them would have more value than cannabis markets that opened before COVID-19.

And in California, people wanting to enter the industry there are better off buying a distressed business for “pennies on the dollar” than acquiring a new license, Macias said.

She said retail licenses are the least desirable because they’re the most impacted by Section 280E of the Internal Revenue Code, which prohibits the use of tax deductions or credits for expenses incurred by businesses engaged in selling a Schedule 1 or 2 controlled substance.

Even so, cultivation and retail/dispensary licenses were the most prevalent in both the U.S. and Canada, according to CRB Monitor.

In the U.S., there were 18,237 active cultivation licenses and 11,772 active retail/dispensary licenses at the end of the second quarter, CRB Monitor noted.

The cultivation and retail sectors also experienced an uptick in approved and pending licenses, with grow permits rising 22% and retail licenses increasing 14%.

Manufacturing and processing licenses were the third-largest license type, with more than 5,870 active licenses in the U.S.

Approved and pending manufacturing licenses increased 23%, while approved and pending wholesale/distribution permits soared 160% - but the category experienced a 4% drop in active licenses to 1,367.

A changing industry

Avis Bulbulyan, CEO of California-based cannabis consulting firm Siva, said the industry is evolving faster today than it was between 2014 and 2016.

Back then, you could come up with an idea and spend two years bringing it to market; these days, however, a lot can happen in a month.

And with marijuana on a path toward possible rescheduling, the potential for interstate commerce is on the horizon.

If marijuana can be transported between states, securing a transport license from only one state might not make sense, Bulbulyan said.

Instead of wasting time on the application process, working with a company already licensed to bring your idea to market is likely more cost-effective.

“Money I would have spent going to chase a license, I can put into marketing and have a bigger success story,” Bulbulyan said.

“If you are trying to get a license today, you’re looking at $2 million and two years.”

Buying an existing license that includes assets can save a business several years in getting to market.

It’s also cheaper: A license that might have cost $5 million-$6 million five years ago likely would command only $3 million in today’s market, Bulbulyan said.

“It makes sense to do it with distressed assets, and almost all assets are distressed these days,” he said.

“It doesn’t make sense to go through the state because, by the time you’re opening your doors, it’s a very different industry.”

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.