Don't Get Stuck With A Worthless Piece Of Paper: Risk, Reward And Other Factors That Make A Cannabis License Valuable

The economic behavior of cannabis licenses has been largely overlooked. Cannabis license values vary widely, from as low as $10,000 to as high as $1.5 million, driven by multiple factors.

First of all, the value of a cannabis business license varies significantly depending on market maturity and license type. In well-established markets like California, Colorado and Oregon, licenses cost less and align closely with market value. Emerging markets like Florida and Illinois, however, see higher prices due to increased demand and limited supply, making investments riskier. In this article we summarize these and other findings on licenses dynamics, reported MJBiz.

Market Maturity Impacts License Value

In newer markets, some licenses, especially those tied to specific categories like transportation, often prove less valuable. This occurs in states where the market structure allows cultivators and processors to sell directly to retailers, reducing the need for certain license types.

For instance, in Illinois, transportation licenses initially seemed promising, but they quickly lost value when the state did not require third-party transportation services.

Many license holders found themselves without viable business opportunities, leading to over 200 transportation licensees, with many shutting down due to lack of demand.

Colorado faces similar challenges with transportation licenses. The state requires municipalities to approve delivery services, but only a few have done so, leaving many transportation businesses struggling to find partnerships. This regulation failures add risk to entrepreneurs seeking to build their business as ancillaries for the cannabis industry.

Get Benzinga’s exclusive analysis and the top news about the cannabis industry and markets daily in your inbox for free. Subscribe to our newsletter here. If you’re serious about the business, you can’t afford to miss out.

High-Value Vertically Integrated Licenses

Florida stands out as a market where cannabis licenses hold significant value, primarily because the state allows vertical integration. A license in Florida has an asking price of 2 million and a market price of 1,5 million dollars.

Vertical integration means that license holders can cultivate, manufacture, and retail cannabis under a single license, creating a more profitable and streamlined business model. This is not the most commonly implemented regulative model. States have a preference for limiting the type and number of licenses that can be held by the same company, thus forcing cannabis business to build horizontal contracting models.

In Florida, where the medical marijuana market serves nearly 900,000 patients, this integration allows businesses to control the entire supply chain, from production to sales, maximizing profitability.

The potential for adult-use legalization in Florida has further increased the value of these vertically integrated licenses. According to recent data, the number of active vertically integrated licenses in the U.S. increased by 2% in the second quarter of 2024, with a surge in approved and pending licenses, particularly in Florida. These licenses offer a strategic advantage in a competitive market, making them highly sought after by investors and entrepreneurs.

Read Also: These 3 Cannabis Companies Hold Cultivation Licenses In Germany: A ~$1.8B Market Opportunity?

Evolving Industry And Licensing Trends

Cannabis licenses tend to retain their value in states where recreational marijuana is not yet available. In markets like Alabama, where operations haven’t started, and Texas, with its restricted medical market, licenses are particularly valuable. States like Kentucky, South Carolina, and Tennessee, which are launching or planning limited medical marijuana programs, also see higher license values compared to markets that opened before COVID-19.

In contrast, California’s saturated market offers better opportunities for acquiring distressed businesses at a low cost rather than purchasing new licenses. Retail licenses are less desirable due to the impact of Section 280E.

Despite these challenges, cultivation and retail/dispensary licenses remain the most common in both the U.S. and Canada.

As the cannabis industry evolves, federal rescheduling and potential interstate commerce could further impact license value. Emerging markets may experience a rapid shift, making once valuable licenses obsolete.

Investors must consider these trends, as well as local market conditions, before making decisions.

Key Insights

1. Market Maturity Affects License Value: Mature markets like California see lower license costs, while emerging markets like Florida command higher prices.
2. Emerging Market Risks: High license prices in new markets come with greater financial risks due to regulatory uncertainty.
3. Declining Value of Specialized Licenses: Transportation licenses in states like Illinois and Colorado have lost value due to low demand.
4. Vertical Integration Boosts Value: Florida’s vertically integrated licenses are highly valuable, allowing full control over the cannabis supply chain.
5. Federal Rescheduling Impact: Potential federal rescheduling could render some state-specific licenses less valuable or obsolete.

• Read Next: Minnesota Prepares For Historic Social Equity Lottery With 1,817 Applications For 280 Cannabis Licenses, Mostly Vets

Cover: AI generated image