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It only took a year for Thailand’s cannabis economy, if you will, to create so much concern in the easygoing nation of 70 million that a newly elected government in September announced plans to “rectify” its predecessor’s nascent cannabis policy, marked by its light (i.e., nonexistent) regulatory touch, to be replaced by an as-yet-undefined medical market the regulations for which may be issued as soon as this month. In that regard, it has been a maelstrom of a year for anyone who had invested in the prospect of a more or less orderly rollout of even a limited recreational program in Thailand, so much so that backing out of, or reducing one’s footprint, in the market might seem prudent, especially in the face of continuing uncertainty. But that is decidedly not the view of Sunderstorm, parent company of the Kanha brand of products, which Cannabis Business Executive last spoke with in January, shortly after the announcement that it was planting roots in the Southeast Asian country as part of a larger vision that, as Sunderstorm co-founder and CEO Cameron Clarke explained during a recent call, is still a central focus of the company.
I jumped on the call under the impression that Kanha had already launched its cannabis and hemp gummies in Thailand in partnership with THCG Group Ltd., but the launch date was still about a month away. It turns out the uncertainty comes with the territory.
“It’s been a little bit chaotic,” said Clarke. Speaking from Thailand, he described in broad strokes what had transpired over the last year. “The previous government descheduled cannabis basically with the stroke of a pen, and overnight allowed virtually anybody to get into the industry just by filling out a simple form on their phone. You immediately had small players coming out of the dark corners who had been growing for years that were ready to supply the domestic market, big players that invested millions of dollars in facilities to cultivate and extract, and then you had just a plethora of players from all across the globe that have come here to open up retail.
“Within a matter of months,” he added, “you had probably 7000 stores open up. By the time I got here last year, it was a bit like New York, with cannabis sold on virtually every street corner. There were carts selling it off the side of the road. It was everywhere. They had their election in the June time-frame, but there was not a clear consensus on a new government, and it took a few months for the parties to negotiate the makeup of the new government. They ended up having a restructuring that was announced in the summer, and the new government essentially said that they don’t want a fully free-flowing recreational market. They only want a medical market.”
While the politicians try to figure out what they want the market to look like, there has been some improvement. “They’ve cleaned up a bit of the messiness of having all these people selling cannabis on the side of the roads – that really doesn’t exist anymore – but you do have probably 4000 or 5000 stores that still exist all over the country, and they’re still fully operating because there are no regulations,” noted Clarke.
They also have a foundation from which to build. “One thing that is important to note is that they did announce a medical cannabis program back around 2021, and issued about 20 to 30 licenses,” said Clarke. “Our partners, THCG, were one of the first five license holders, which is one of the reasons why I chose them as a partner. They have strong connections to the government, they were one of the original medical license holders, and with their medical licenses, they also have the opportunity to export, which was of great interest to us. Basically, you’ve got this older medical system that got blindsided by the scheduling of cannabis, so now the government is trying to figure out how to dial things back in order to put a fully regulated system in place.”
But it could also turn out to be a medical program with recreational benefits. “They want it to be medical, but there is some opportunity that there might be some kind of recreational aspect to it,” said Clarke. “I say that very carefully, because the government is very clear that they want a medical system, but it’s possible that tourists will have access to the medical system in a similar way that everybody had access to the medical cannabis system in California back in the Prop 215 days.” Ah, the halcyon days of Prop 215, forever destroyed with the passage of Prop 64.
I asked Clarke if Thailand was following in the footsteps of Germany, which also scaled its rec plans back in favor of medical program with tightly controlled and limited recreational clubs. “It’s entirely possible,” he replied, “but I think Thailand is different from Germany in some important ways. Thailand is a massive tourist destination, with 30 to 40 million tourists coming here every year, so it’s a huge part of their economy, and the Thais do understand the value that the cannabis tourism can bring. So, I think they’re trying to figure out how to work within that context, but also make sure that cannabis is not broadly available to children and is not on every street corner.”
Those concerns are not negligible. “There was a fair amount of backlash from Thai doctors and others because it was on every street corner,” said Clarke. “So, they’re trying to avoid that but also keep it within the tradition of Thai traditional medicine, and as far as I know, Germany does not have a history of traditional medicine like Thailand does with its history of cannabis as a herbal remedy, which is an important part of how they view this as well.”
Was it a complete free-for-all in the stores currently offering cannabis for sale? “They have some very basic laws in place, like 21 and older, and you can’t sell to women who are pregnant,” said Clarke. “But that’s about it. The previous government was drafting regulations, but because of the election they never got them implemented, and the new government is trying to take those regulations and figure out what the right path forward is.”
Planning for the Unknown
I was curious about how a company used to structure manages in an environment like this. What was Kanha preparing for when it got to Thailand a year ago in partnership with a company that had licenses? What were its expectations?
“I think that’s a great question,” said Clarke. “To be honest, I’m actually a similar place now, because I recognized very quickly when I first came here a year ago that they had just dropped the floodgates, and they hadn’t even put a plan in place to even tax cannabis. This whole thing just exploded as a fully free market, and I knew that it wasn’t going to last forever. But I also recognized a year ago that it bodes well as a great opportunity for us. Kanha can become a truly global brand, because we can open up in Thailand and serve the Thai domestic market and we can serve the global market from Thailand.
“So, in a very simple way, that was what I recognized as the opportunity,” he continued. “I saw back then that pretty much anything could happen because they hadn’t issued the regulations, and it was hard to really understand which kind of strategy the government was supporting. I quickly learned that there are forces in Thailand that were fighting against recreational and even medical cannabis, and they had to cater to that. I also knew the election was coming up, so my perception back then was that pretty much anything can happen, and we were going to need to invest the right amount of money to manage against that risk. I saw a great opportunity, the first country in Asia, but I recognized that we couldn’t see what it would look like down the road.”
Fast-forward to today, and the picture is a littler clearer. “Now we have the new government, we know they want primarily a medical program, the market is dialed back a little bit, and I’m starting to see some clarity,” said Clarke. “The way I look at it today is this is not a lot different than what we’ve seen in the US, this dip from the California Prop 215, from the medical market to recreational cannabis. It was a little bit messy, and it is still a little bit messy, but I also think that if you’re in this industry, you need to make sure that you can pivot quickly and adapt to changing market and regulatory forces.”
The same lesson applies here, he added. “If they decide to have a fully medical program, that’s fine, because we have medical licenses through our partner, and we’re going to be selling in pharmacies and potentially hospitals and through other medical outlets,” he noted. “There are a number of medical license holders, including some large chains that have a number of retail outlets, and they will be selling products down the road for sure. The question is, what does that look like, and what are the requirements for someone to walk in the door and be able to get access to cannabis? We know they’ll have access [to cannabis], but we don’t know what the limitations will be, so that’s what we’re going to be looking for heading into the future.”
But that’s also just the tip of the Kanha iceberg. “Here’s the thing,” explained Clarke. “The way the medical program is rolled out will dictate the size of the available market for consumer products domestically – and I don’t know what that’s going to look like – but my bigger play is the global market. Despite the fact that they want to dial back the domestic program a bit, I think that down the road they’re going to allow the robust export of a variety of products that are recreationally oriented. Now, interestingly enough, the global market is very much of a medical market. You don’t really have recreational markets anywhere other than Australia. We have a recreational market masquerading as a medical market.”
That is what they used to say about California. “Yes, it’s exactly the same thing,” responded Clarke. “So, from our perspective, we’re focusing on and designing products for the medical piece of it, but if we have access to recreational or quasi-recreational, we’ll serve those markets, too. The bottom line is that my cost structure here is going to be low enough that I can manage whatever these changes bring in the future.”
And Kanha is looking forward to launching products in a market that defies easy description. “There is this quasi-recreational market that exists,” said Clarke. “There are products flooding into these outlets every day, so that market exists today. We’re also going to pursue the medical market and we’re in discussions with pharmacies.” But the legal status of the current situation is vague at best. “It’s still very gray because they don’t have the regulations fully dialed-in,” he added, “so we’re still exploring how that will transpire.”
Production capabilities are also progressing. “We’ve identified a facility, we’ve started construction, and we’re working with the Thai FDA right now for all the approvals,” said Clarke, noting that Thailand is still getting its production act together. “There are still a lot of folks in this industry that are making stuff in their houses, and we’re not playing that game. We’re doing everything by the book and working with the Thai FDA. So, the construction on that facility is almost complete, and we’re starting to bring in equipment and raw materials. We’ve sourced all the raw materials that we need here, and we have also brought some raw materials over from the US. We just have to get through the approval process with the Thai FDA, which we believe should not be too complicated, since we’ve been working with them.”
A Multi-Billion Dollar Thai Market?
I mentioned a bullet-point sent by Kanha about the burgeoning cannabis and hemp markets in Thailand, which was expected to grow 15 percent annually, reaching $1.2 billion by 2025. Was that achievable through medical growth alone?
“I think that number is a little bit of a conservative number based on a fully recreational market in Thailand,” replied Clarke. “That’s how I would position that. It’s a country of 20 to 40 million annual tourists and 70 million Thais. You’ve got states like Illinois, which is a $1.8 billion market, and you’ve got Michigan, which is about the same size, probably a little larger. So, when you combine tourism with the domestic market in Thailand, you’ve got a lot more people to cater to. To my mind, that number would be significantly higher in a recreational market, however it will depend on the scope of the medical regulatory system. I do think there will be some aspect of recreational cannabis for tourism, and we are lobbying for that with the government to see if that’s a possibility, but we shall see. But to try to gauge what this market size will be in a couple of years is pretty difficult at this point without understanding what the filter is going to be.”
Holding one’s breath will not work, either. “It’s going to be at least another three or maybe six months before we even see the regulations, and then it’s going to take time to implement them,” said Clarke. “Our belief is that we probably have another year of this kind of no man’s land where the market is today, which is fine for us because we can operate in it. Again, I’m justifying the construction and expensive of a facility for the global market based on being able to sell into the domestic market.”
What is Thailand’s potential to become a key production hub exporting products to the world, I asked. Is it low cost of production, access to raw material? What makes it so attractive? “I’ll tell you where my head is on this,” replied Clarke. “First of all, cannabis has been part of Thai culture forever, and a part of Thai traditional medicine for a long, long time. The truth is that Thai doctors can prepare any concoction of cannabis mixed with other compounds that they want in order to heal their patients, and that’s based on the history. To me, that means that despite the fact that it was scheduled since the 70s, cannabis has been a part of their culture and in the black market here forever. When you take that and combine it with the large tourism industry, I see it similar to our choice of operating in Nevada, which is not a billion dollar a year market. There’s a lot of challenges to Nevada and it’s very competitive, but for us as a brand looking to build a global audience, Las Vegas was a great place to have a facility and sell products, because people travel there from all over the country and all around the world and they can familiarize themselves with our brand.
“It’s a very similar situation here in Thailand,” he stressed. “You have all these tourists coming in from across the globe to enjoy themselves, and they will familiarize themselves with Kahna products, so that’s an important part of the decision-making process as well as having an opportunity to sell into the domestic market. And then the fact that I have a great partner that is easy to work with and is willing to share costs and investment and has good connections with the government and wants to work within the confines of a regulated system, all of that aligned to make this a relatively easy decision for me. On top of that, as you mentioned, the cost of labor is very low here, and the Thais have understood how to grow cannabis for a long time.”
There has been churn in the cultivation area over the past year, however. “Interestingly enough,” explained Clarke, “one thing that has changed dramatically is that about a year ago there was a massive amount of black-market flower from the US and Canada into the domestic Thai market, and then the locals start putting their cultivated products out. The quality was fairly low in the beginning, and they really couldn’t compete with the imported product for this black market. But they have very quickly improved the quality of their flower, and like every market they’ve also cultivated more than the domestic market can consume. So, the supply and demand curve has switched, and prices have dropped in half, which basically squashed the import of the black-market flower, and the majority of flower now in Thailand is domestically cultivated.
“I guess the main point here is this market is moving very fast,” he added. “In one year, the quality of all products has improved dramatically, and I think that will continue to happen. A lot of folks have come here from other countries that have expertise and are offering it to the Thais, like us, and the Thais are working hard to build this industry.”
It all adds up to Thailand becoming the production hub to export Kanha products to the world. “That’s the goal,” said Clarke, “to build one of the very first truly global cannabis brands, and I don’t see that happening too much. So, that’s our new positioning. I found this opportunity as a way for us to shift gears from being only a national cannabis brand to being a global cannabis brand. And for us, seeing all the challenges that we’re facing in the US domestic market, having to build facilities in each state and manage all the different regulatory systems, I can deal with one regulated system in Thailand, and I can export and sell all over the world. So yes, it opens up opportunity for us.”
Home Grown
Of course, that begs the question, does Kanha have any development news from the Old World? “We have opportunities all over the US,” responded Clarke. “We want to set up in a number of different states. There are probably 10 states right now that are on my target list of places that I would like to be in as soon as possible. Despite all the challenges in New York, that is one of the states that we’re working on. It’s going to be probably the largest market in the US, and we have got to be there.
“But it’s really an issue of timing,” he added. “The constraint for us is that setting up facilities in these states is capital intensive, and without investor capital coming in and helping to fund these new facilities, were a little bit hamstrung. So, what we’re doing today is opening up in markets where we know we can be successful. So, we’re launching in Illinois imminently, and we’re very excited about that. I’ve also got another good state that we should be opening up sometime in the next three to five months, but we’re not announcing it publicly yet because we’re still putting that one together, but it’s going to be a great opportunity for us. And then next year, I think we can open up in probably two more states, so we’re moving forward in the complicated US market.”
New products are also on the menu. “We just launched chocolates, which we’ve been working on for a couple of years, and we’re launching new products in California in the very near future that are going to be very interesting, and that we’re very excited about,” said Clarke. “I think the other thing is that since California is our base, and it’s the majority of our revenue, we’re working to figure out how we navigate the challenges in the current California market and the downturn there.
“One of the elements of our business that I’ve worked hard to build is our distribution facility, and our distribution entity,” he continued. “We actually are one of the largest distributors in California – only distributing for ourselves – but we have built a very powerful infrastructure. I think our ERP implementation is one of the best in the industry, and so we are, in fact, starting to take on some new brands to distribute them. We’re cherry picking them very carefully so that they are synergistic with our products, but we’re also looking at new categories.
“We have a very powerful pipeline to retailers in the states where we operate, and we have great relationships with them,” he added. “We believe that we can offer other categories and put other products on the shelf, which is why we bought Bounti in Nevada. So, we’re selling Bounti vapes and Kanha gummies in the Nevada market today, and we’re launching Kanha vapes and Kanha gummies in Illinois imminently.”
The only thing hampering the pace and scale of expansion is access to capital. “If the capital markets change, and we can bring in some investor capital, then the slope of the curve will change, and we will open up a new markets much faster and build our national brand. But without investor capital, the whole industry is hamstrung, so we’re just going to have to get through these challenging times. I think every company in this industry is looking at their bank account right now and saying, ‘Oh, my gosh, can I actually survive what we’re going through?’
“We do have to prepare for whatever happens at the federal level,” he added. “But my focus is to continue to be a profitable business through the challenges, and we are going to continue to scale at a pace that makes sense for us. The most important thing is to be large enough to be able to survive, and that’s where we are today, so I think we’re in a very good position for the future.”
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