State Cannabis License — Intangible Asset (Finite-Lived, Amortized Over License Term)

💡 Accountant's Note

State cannabis licenses are among the most valuable business assets in the cannabis industry — and the most supply-constrained. Unlike most business licenses (which any qualified applicant can obtain), cannabis licenses are issued in strictly limited numbers: New York initially awarded 36 cultivator licenses for the entire state; New Jersey initially awarded only a handful of dispensary licenses; many municipalities cap dispensary licenses at 1–3 per jurisdiction. This artificial scarcity creates ENORMOUS license values — a single Los Angeles dispensary license can sell for $5M–$20M; Massachusetts dispensary licenses have traded for $30M+. License accounting: (1) DIRECT APPLICATION: application costs (legal fees, consultants) may be capitalized as intangible development costs if the license approval is probable. (2) PURCHASE FROM EXISTING LICENSE HOLDER: recorded at cost (an asset acquisition — the license is a finite-lived intangible amortized over the license term, typically 1–5 years renewable). (3) BUSINESS COMBINATION: the license is the primary identifiable intangible — valued using the income approach (PV of expected excess earnings attributable to the license). The license value must be re-evaluated at each license renewal — if renewal is NOT reasonably certain, the useful life ends at the current license expiration.