The cannabis investment project consists of a mix of local and foreign investors, with expectations of substantial investment while being driven by high market demand, according to the Board of Investment (BOI).
Addressing a recent media briefing, Investment Promotion State Minister Dilum Amunugama revealed that the Government’s cannabis investment plan had already attracted 30 applications, currently under review by a committee of Ayurveda Department and Ministry of Investment Promotion officials. The proposed cannabis projects are set to be located in Mirigama and Kandy, although further funding is necessary to advance these initiatives.
In 2022, under the direction of President Ranil Wickremesinghe, a parliamentary committee comprising senior officials from various ministries, including Defence, Finance, Justice, Health, and Tourism, as well as the BOI, was established to legalise cannabis as an export product. The committee evaluates project proposals in compliance with the Ayurveda Act No.31 of 1961 and the Greater Colombo Economic Commission Law No.4 of 1978 (the BOI Law), ensuring that all initiatives meet national and international regulatory standards.
Sri Lanka’s historical journey with cannabis is associated with legal complexities, dating back to the Dutch and British colonial eras when the plant was banned in order to promote alcohol and tobacco instead. Today, Sri Lanka must establish proper regulatory frameworks to ensure compliance with both domestic and international laws.
According to an agreement that was signed with the United Nations (UN), Sri Lanka can cultivate cannabis for medical and scientific purposes only and not for recreational purposes.
Broad market appeal and diversification
Indian trade specialist Suhayl Abidi projected the cannabidiol (CBD) market to grow significantly, from $ 5.49 billion in 2019 to $ 26.25 billion by 2027, driven by rising demand in medical applications, cosmetics, supplements, and wellness products.
Abidi also noted that CBD’s therapeutic benefits were gaining recognition, as evidenced by the US Food and Drug Administration’s (FDA) approval of the first cannabidiol drug, Epidiolex, validating its use in treating conditions such as epilepsy.
Cannabis oils, commonly known as hash oil, are versatile products consumed through various methods, including smoking, vaporising, and topical application.
Besides recreational use, cannabis oils are increasingly recognised for their medicinal applications, helping to relieve pain, anxiety, and nausea, among other conditions. Innovative uses have expanded into beauty and skincare products, beverages, chocolates, and even pet treats, demonstrating the broad market appeal and opportunities for diversification.
Cannabis contains two primary psychoactive compounds: tetrahydrocannabinol (THC), which induces the ‘high’ associated with marijuana, and cannabidiol (CBD), known for its therapeutic benefits without intoxicating effects. Legal hemp must contain 0.3% THC or less to ensure that products meet safety standards without recreational misuse.
Restricted to medicinal purposes
BOI Director General Renuka M. Weerakone told The Sunday Morning Business that the project’s investors included a mix of local and foreign participants. Cultivation will be restricted to medicinal purposes, with products containing lower levels of THC suitable for medical use.
Weerakone added that although an exact figure for the total investment could not be specified at this stage, substantial investment was anticipated. The cultivation will take place alongside establishing a manufacturing plant for processing and value addition. Each company is also required to deposit $ 2 million before commencing operations.
“Market research indicates that there is demand for cannabis as a raw material for medicinal purposes in various countries. Other Asian nations, such as Thailand, have embarked on similar paths, including commercial sales. However, the structure will be strictly limited to exports in Sri Lanka.
“No specific target markets have been identified as it will be up to each investor to decide how and where to export, provided that exports comply with the importing country’s regulations,” she said.
Addressing concerns about the allocation of land, Weerakone underscored that land allocation was underway and that the activity would be confined to BOI zones in controlled environments. It will not be open cultivation; instead, the Ayurveda Department will oversee technical aspects and verify the legitimacy of the processes.
“The commencement dates for cultivation will be determined after signing agreements, following all preliminary approvals. The proposals are still under review, and there is no set deadline for finalising the agreements,” Weerakone added.
The licensing process
Speaking to The Sunday Morning Business, Department of Ayurveda Commissioner General Dr. Dammika Abeygunawardana highlighted that the department was in charge of the licensing process of medicinal cannabis cultivation.
“We are in charge of the licensing process and issue licences to those who request approval. If the project is approved by the BOI, it is then forwarded to the Ayurveda Department for approval of cannabis cultivation. Following this, we issue the licence,” he said.
Dr. Abeygunawardana stated that applicants must adhere to national and international laws regulating cannabis cultivation in Sri Lanka. After consulting with the BOI, the applicants should apply to the Department of Ayurveda’s special committee. Upon completing all required processes, the committee verifies compliance with established regulations and, if met, issues a temporary licence for cannabis cultivation.
“We continue to monitor compliance with the licence terms to ensure no regulations are violated. The Department of Ayurveda essentially oversees the licensing in adherence to the laws. Cultivation is regulated under the Ayurveda Act No.31 of 1961.
“Regarding export potential, a Cabinet paper mentions that Triloka Vijaya Patra (cannabis)-based products should be exported for medicinal purposes only. A minimum of 40% value addition is required, which is the BOI’s basic rule; no raw particles are permitted and the THC content must not exceed 0.3%,” he added.
Increasing investment inflow
Further, an authority from the Ministry of Investment told The Sunday Morning Business that this investment opportunity was open to everyone. Currently, these applications are being evaluated to select suitable investors.
The primary aim of introducing this initiative is to increase investment inflow to Sri Lanka, with the condition that a minimum deposit of $ 2 million must be made before starting the business in Sri Lanka. There are other requirements, and this cultivation will be used solely for medicinal purposes, focusing on oils and extractions.
“The Cabinet approval mandates cultivation to occur in restricted and controlled environments. Therefore, we also suggest the Mirigama Export Processing Zone for this process. The regulation of this activity falls under the Ayurveda Department.
“This is a collaborative project, and we are not executing it alone. The Ayurveda Act governs the sole permission to grow cannabis in Sri Lanka. The Ayurveda Department has already prepared the regulations, which have been passed by Parliament and are now effective,” he noted.
He further explained that a committee overseeing the project had been established to ensure compliance with the regulations. It includes the Director General of the BOI, the Commissioner General of Ayurveda, and officials from the Excise Department, Department of Export Agriculture, and other relevant organisations. This committee is expected to oversee the review and monitoring processes.
He clarified that the project was in its preliminary stages, with proposals under review. A market survey and commercial feasibility study have been conducted and the findings submitted to the Cabinet.
“Even though the feasibility research has been completed on our end, investors will conduct their due diligence before proceeding. We are not specifically targeting foreign markets yet, but reportedly there is sufficient demand for these products,” he added.
Push towards legalisation
The global cannabis market is expanding rapidly, with cannabis oils exported by all countries totalling $ 4.21 billion in 2022, marking a 42.9% acceleration from 2018. The top exporters, mainland China, India, France, the US, and Spain, dominated the market, accounting for 71.8% of global sales. Asia led the world in cannabis oil exports, with shipments valued at $ 2.5 billion.
The global cannabis market was valued at $ 43.72 billion in 2022 and is projected to increase to $ 444.34 billion by 2030, reflecting a significant economic opportunity. Sri Lanka’s push towards legalising medicinal cannabis cultivation for export has been seen by advocates like former Minister Diana Gamage as a strategic move to grow the economy, given the country’s fertile land and suitable climate.
National Chamber of Exporters of Sri Lanka (NCE) Secretary General/CEO Shiham Marikar stated that the cultivation of cannabis products would have both pros and cons. He added that using it and exporting it as a medicinal product with added value, and even re-exporting it, could bring foreign currency to Sri Lanka.
“As the NCE, we advocate for increasing our product basket. If investors are willing to participate, this project could be valuable provided it is conducted under controlled conditions to prevent misuse. Sri Lanka should not be seen as a country supplying cannabis for illegal purposes. The chamber supports the cultivation as long as it is tightly regulated and the products are for medicinal purposes.
“A few pharmaceutical companies in Sri Lanka export raw materials to manufacture end products overseas because we lack the machinery and technology for such conversions. As a chamber, we encourage and support these industries in finding market access for these products, but we emphasise the need for strict control and medicinal value regulation,” he said.
Commenting further, Marikkar highlighted that this was an emerging industry, and as a chamber with numerous ties to overseas trade chambers, the NCE was open to consultation on export strategies. However, he stressed that for this particular product, no concrete plans or market actions had been put together yet by the NCE, as there were many steps to be undertaken, such as securing investments, setting up operations, and finalising the growing and processing phases.
“A major concern remains the policy framework the Government will introduce to regulate exports. As a chamber, our focus has always been on the consistency of policies, as these can shift with changing governments, which is a trend that has been observed in the past.
“Any policy changes must be made in consultation with the private sector, particularly with chambers, to provide ground-level input. A long-term, consistent policy framework is essential for this project to attract further investments and expand. Land allocation issues also need to be addressed to ensure stability for investors,” he noted in conclusion.