Facing a tough market, Canadian pot producers are diversifying into orchids, beer and veggies

When Miguel Martin first visited Bevo Agtech Inc.'s Langley, B.C., greenhouse, he saw potential bursting from every corner.

Hundreds of trays of tomato seedlings stretched away under the glow of LED lights. Baskets of blossoming flowers hung from the rafters. And the company was convinced it already had its next big product line: orchids.

Martin is CEO of Aurora Cannabis Inc. and may have seemed like an unlikely buyer for Bevo, an agriculture stalwart still run by the Dutch family that founded it in 1986.

But it was a good match: the Edmonton-based pot giant already had the hulking, temperature-controlled greenhouses Bevo needed to expand, while for Aurora, Bevo's stability would provide some reprieve from the volatile weed industry.

"It's a company that makes money. It's a company that's growing," Martin said in a September interview, a year after Aurora bought a 50.1 per cent stake in Bevo for $45 million.

"It's a company that's not broken. It doesn't need us to do everything for them."

In the cannabis world, where facility closures, layoffs and multimillion-dollar writedowns have become the norm, "growing" and "not broken" are crucial elements for survival.

Over the five years since cannabis was legalized in Canada, pot companies have been constrained by the strength of the illicit market, packaging and tax rules they see as too restrictive and U.S. regulators that have been slow to make national changes.

As the industry continues its slow crawl toward profitability, many are now heavily focusing on other parts of their companies to protect themselves from further upheaval.

For example, Village Farms International Inc., the Vancouver-based owner of cannabis companies Pure Sunfarms, Leli Holland and ROSE LifeScience, has a subsidiary growing tomatoes, cucumbers and peppers.

SNDL Inc., the Calgary-based firm behind the pot shops Value Buds, Spiritleaf and Superette, owns hundreds of liquor stores across Western Canada.

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"A lot of cannabis companies have evolved and are different than maybe what they were before," said Martin.

That's certainly true at Tilray Brands Inc., a Leamington, Ont.-based company whose chief executive, Irwin Simon, joked, "I have four children beer, cannabis, medical cannabis, Manitoba Harvest and love them all equally."

Tilray began as a pure-play cannabis firm, but shortly after legalization it dropped $277.5 million on Manitoba Harvest, a purveyor of hemp-based foods, oils, and supplements with a history dating back to 1998.

As its buying spree continued, alcohol became Tilray's new focus.

It first obtained exposure to beer through its merger with cannabis company Aphria Inc. in 2021. Aphria had paid $300 million US in 2020 for SweetWater Brewing Co., an Atlanta brewer best known for its 420beer that smells like weed but contains no pot.

Then, Tilray bought Colorado-based whiskey and spirits producer Breckenridge Distillery as well as California's Green Flash Brewing Co. and Alpine Beer Co. in 2021, followed by New York's Montauk Brewing Co. in 2022.

And it wasn't finished. Over the summer, Tilray announced a deal with Anheuser-Busch Cos. that would see its beverage portfolio gain eight more brands Shock Top, Breckenridge Brewery, Blue Point Brewing Co., 10 Barrel Brewing Co., Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Co., and HiBall Energy.

"Most of these eight brands were declining somewhat and we are glutton for punishment. We like a challenge," said Simon. "We felt, 'Hey, we can turn these around."'

The deal put Tilray on track to become the fifth-largest craft beer operation in the United States and gave the company a sizable share of a multi-billion-dollar industry Simon said has "got a little stale."

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He's confident Tilray can "make craft beer cool again," but admits part of the reason why the company is even interested in the task is because other markets that were expected to welcome cannabis haven't done so.

"The reason we're diversifying, ultimately, is ... the U.S. markets and the European markets," Simon said.

"We don't see legalization from a recreational (standpoint) happening in the U.S. any time soon."

Canadian cannabis companies were hopeful the U.S. would move forward with national legalization after President Joe Biden revealed he would review the status of pot as a Schedule 1 substance in 2022.

Schedule 1 controlled substances are considered to have a high risk of abuse and no accepted medical use. The group includes harder drugs such as heroin and LSD.

While the U.S. has moved toward easing federal financing restrictions for pot companies, national legalization is not on the immediate horizon, leaving Canadian companies that had poured cash into American weed prospects to look elsewhere for opportunities.

But Peter Simeon, co-leader of law firm Gowling WLG's cannabis division, warned diversification doesn't always work out.

"Look at BioSteel and Canopy. That's a failure," he said, referencing Canopy Growth Corp.'s foray into the sports drink business, which recently wound up with BioSteel Sports Nutrition Inc. filing for creditor protection and in debt to teams like the Los Angeles Lakers, even after Canopy advanced $366 million to keep the firm going.

"To go to other industries can be challenging, I think," said Simeon.

Yet executives like Aurora's Martin are willing to take the risk.

When Aurora bought its stake in Bevo, its 800,000 square foot, high-technology greenhouse Aurora Sky was slated for closure. Instead, Bevo moved in, delivering big savings.

"To have a facility that could keep an orchid at that exact humidity and temperature (needed) would have been wildly expensive," said Martin.

"If you wanted to build it from ground up, it probably wouldn't have made a lot of sense."

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The facility near Edmonton International Airport, which previously grew weed destined for flower, pre-rolls, oils and edibles, could handle an orchid's 18-month growing cycle. Its close proximity to the U.S. border allowed the company access to a new market.

These buyers would have typically been served by growers in Southeast Asia, from where the bulk of North American orchids are shipped on ocean freighters, revitalized and then sent out to stores.

The delivery process from western Canada was far quicker when Bevo made its first sale of orchids a few weeks ago, and Martin is hopeful that will continue as successive rounds of the delicate flowers reach maturation.

Though he's pleased with how Bevo has progressed, he insists Aurora's core focus hasn't shifted.

"We are first and foremost a Canadian-based medical cannabis company. That's the vast majority of our profitability," he said.

"It's the vast majority of our revenue. It's what we spend the most amount of time on."