How to enable cancel record option based on current state of record?

We can do this by going to setting page of particular process ‘Workflow Management’ ->States. In this page, you need to click under ‘Customize fields’ column for a specific state name from where you need to enable cancel state, you will find ‘Allow Cancel Record’ check box which needs to be checked so that from specific state you will get cancel state in workflow.

Please refer our online help for more details - States