As of late, my portfolio has mainly revolved around junior mining companies and it has been paying off handsomely. Sure, mining can be very lucrative when you make good picks, but at the end of the day, it’s not the most ethical or sustainable industry to be investing in. So, I have been looking for ways to expand my portfolio beyond the realm of mining stocks, so I can not only make a nice profit, but also feel good about doing so. Enter… NEXE Innovations (TSXV:NEXE).
Not only does this company have an incredible product, but I can also take comfort in the fact that my money is going towards something that is environmentally-friendly and contributes to the circular economy (one of the key solutions in addressing the climate crisis) by providing a zero-waste solution for something we all know and love — compostable coffee pods.
So what does NEXE do?
Long story short, they make compostable coffee-pods. NEXE’s first patented product – the NEXE Pod – is a plant-based, fully compostable coffee pod that is compatible with the leading single-serve coffee format machines (Keurig and Nespresso). NEXE’s compostable materials are a sustainable substitute for single-use plastics and contribute directly to a circular economy by providing a zero waste solution.
If you use coffee pods yourself, you might understand right away how much potential this truly has. If not, just take a quick look at the market size and growth rates.
Currently, the market for coffee pods is HUGE and is also growing very quickly — the global coffee capsule market will grow from $12.33 billion in 2022 to $13.3 billion in 2023 at a compound annual growth rate (CAGR) of 7.9%. However, the biggest issue with the current market is that a vast majority of coffee pods offered on the market today are not compostable and end up in landfills all over the world. NEXE’s compostable pod provides the perfect solution for this.
The initial formulation of the NEXE Pod composted in as little as 35 days with no evidence of toxicity in soil containing NEXE Pod compost. Even better, with continued R&D, NEXE has developed a new formulation and pod structure that results in the NEXE pod composting in as little as 17 days.
This might not seem like a big deal to some, but believe it or not, the University of British Columbia, the B.C. Provincial Government, and the Federal Government have all validated this formula and are big supporters of the company’s mission. In February 2021, the B.C. Provincial Government actually gave NEXE Innovations a $300,000 grant to support the Company's research and development into new plant-based compostable materials in collaboration with The University of British Columbia. In addition, the company also received a $1,000,000 grant from the federal government.
"We are appreciative of this support from the Government of BC, which reflects its commitment to supporting disruptive companies in the cleantech space," said Ash Guglani, President of NEXE. "This grant, combined with the recent Innovative Solutions Canada $1 million award from the Government of Canada further validates NEXE's global expertise in biopolymer technology and supports our vision of eliminating single use plastic across the globe."
Now let’s talk numbers…
With two facilities in Canada, NEXE is on track to reach total production capacity of 500,000,000 pods per year by the end of this year… now imagine if they sold those at wholesale prices ($0.20/each), that would translate to $100 million in revenues.
On top of that, NEXE’s capital investments are front-end loaded – meaning minimal investments are required over the next two years. This is an ASSET RICH company with essentially no valuation attributed to growth and compostable materials technology.
As for the bottom line, NEXE has increased its operational footprint and is vertically integrating operations and bringing processes in-house to have greater control over the production process. This provides NEXE with flexibility, ability to scale quickly and reduce supply chain risk, and benefit NEXE’s operating margins.
Now you might be thinking, are coffee pods really the only thing they can produce? Certainly not.
In my opinion, the blue sky potential for NEXE comes via their flexible and scalable operations and comprehensive IP portfolio, which would allow for NEXE to develop new products beyond coffee pods as well as potentially licensing their technology to large brands.
A perfect example would be right here in Canada with the government’s ban on single-use plastics. The government of Canada recently announced that, effective December 20, 2022, the manufacture and import for sale of the following harmful single-use plastics in Canada will be prohibited: checkout bags, cutlery, foodservice ware made from, or containing, problematic plastics that are hard to recycle, stir sticks, straws (with some exceptions), and ring carriers.
This prohibition is going to leave a huge hole in the market for these items and NEXE is in a perfect position to fill that market gap.
With NEXE’s manufacturing capabilities and portfolio of IP, they can start producing these alternative products very quickly and in mass amounts.
Another really interesting thing I noticed about NEXE is that insiders of the company were buying heavily leading up to the new year, and then stopped very abruptly. This is leading me to believe that insiders may potentially be blacked out, pending significant news. This is only a personal speculation so I could be wrong here, but worth keeping an eye on the news feed for potential market-moving news.
THE BOTTOM LINE
NEXE Innovations is a refreshing change for my portfolio away from the traditional junior mining play and a nice opportunity to make a ton of money while also feeling pretty good about it. I love the product and the fundamentals — especially with banning of single-use plastics in Canada and NEXE’s ability to expand their product portfolio beyond coffee pods. I see big things on the horizon for this company.
The author owns shares of NEXE Innovations and may choose to buy or sell at any time without notice. The author did not receive any compensation for publishing this article.