Up in Smoke
Clarifying myths about Thailand’s cannabis laws
There has been no shortage of myths about Thailand’s supposed liberal attitude to the plant. This has unfortunately led to several investors sinking their fortunes into businesses that likely don’t exist today.
It is important to understand that cannabis decriminalisation does not mean deregulation, and anyone seeking to enter the industry should take the time to understand existing restrictions. The recent ministerial announcement, effective in mid-2022, only removes most parts of the cannabis plant from Category 5 of the list of narcotic substances and does not allow liberal use of the plant. Recreational use and products that contain more than 0.2% of THC, remain highly illegal. There are also strict guidelines stating that cannabis can only be used for medical and research purposes. A further extension to cosmetics and supplements is expected.
Current regulations give Thai interests a head start in the country’s “budding” cannabis industry. This means foreign investors and entrepreneurs face added hurdles to directly engaging in commercial activities involving cannabis. Among these are restrictions on who can apply for licences and the fact that private foreign companies are currently barred from directly participating in commercial activities involving cannabis until Feb 19, 2024.
Industrial hemp is marginally easier. According to the recent regulations, any activities involving hemp are limited to Thai nationals or companies domiciled in Thailand with a majority-Thai directorship. Yet, even these more liberal regulations for industrial hemp mean foreign operators still require a rigorous screening process, with authorities looking into the background of stakeholders, operational plans, as well as security and safety procedures among many others. The importation of hemp for process is also illegal and there are limitations on what hemp can be used for.
TO MAKE A SMALL FORTUNE, START WITH A LARGE FORTUNE
Compared to its neighbours, Thailand has been seen as progressive in the realm of cannabis liberalisation. However, this comes with conditions, many of which have not been made clear to investors seeking to replicate the “Green Revolution” in Thailand.
A lack of due diligence, especially when travel to Thailand was difficult, has meant many entrepreneurs and even home growers have unwittingly fallen victim to unscrupulous projects, some of which are just scams. A constant stream of reports of these scams eventually led the Food and Drug Administration to issue a warning that cultivating cannabis is extensively regulated and to be wary of schemes, especially if they seem “too good to be true.”
Other scams focused on misinformed farmers who believed they could grow cannabis for large profits under licences obtained by others. The government has identified cannabis as a potential cash crop, but growers are obliged to follow a long list of requirements. In this scam, farmers were tricked into growing crops by paying an “upfront” sub-license fee, or they were misled and used as “proof of concept” for companies eventually duping investors.
Other schemes include the advanced purchase scam which took advantage of foreign entrepreneurs wanting to quickly enter the Thai cannabis market. In these cases, potential partnerships between foreign entrepreneurs and “authorised” partners led to substantial upfront payments to build grow facilities, obtain licences, or even “bait and switch”, where the “herbal” crop, after payments were received, was changed from cannabis to turmeric or ginger.
Indeed, the cannabis industry has huge potential and will be an important addition to Thailand’s economic development, but early investment has risks and keen entrepreneurs need to be cautious. The market certainly exists and has considerable potential, but it is important to conduct thorough due diligence and be aware of who one is dealing with to prevent one’s money from going “up in smoke”.
Paul Crosio is a Partner at Silk Legal & founding partner of Silk Advisory. He is a practising Australian lawyer with over two decades of corporate experience in turn-around management in Thailand and abroad. For more information, please contact info@ silklegal.com.