The Thug's Cloak can be found in Nobilia Colosseum. To find it, the player must own the Bronze Armor, Stone Vest, and Centurion Cape. A pot in the Colosseum will normally contain one of the three armor pieces the player doesn't have, but with all three in the inventory, the pot will contain the Thug's Cloak. Keep in mind that acquiring the Centurion Cape by this point requires sparing The Prophet or trading the Jade Disk (the Disk can be acquired again later).
The Thug's Cloak can later be found available at the market in Gothica by trading 8 Perfume and 8 Beads. The merchant is initially at the market in Ivor Tower, but will move to Ebon Keep after defeating Mungola.
Finally, if the player rescues a friendly Oglin from the well in Ivor Tower South, they can find it in the Dark Forest. The Oglin will thank them for the rescue, and give them the Thug's Cloak. If the player already has the Cloak when they find the Oglin, they will receive the Wizard's Coin instead.