If you like drinking coffee, making money, and saving the environment all at once, then you need to take a look at this small cap company: NEXE Innovations.
I have previously touched on this company in the past (check out my last article on NEXE Innovations) but recent strides and milestones being hit suggest that it might be worth a second look.
Over the last few years, NEXE Innovations has been perfecting its formulation for a compostable coffee pod and is now ready to take the market by storm.
A bit of background on the stock…
When NEXE Innovations debuted on the TSXV at $1.50 in December 2020, it took off quickly, soaring to an all-time high of $5.90 within just three months of its IPO.
Right from the start, NEXE Innovations struck a chord with retail investors, and for good reason. Their product is something every coffee drinker can relate to and it offers up a solution to a real-world issue, which is that most coffee pods on the market aren't compostable and end up in landfills around the world. But investors seemed to have gotten ahead of themselves soon after the IPO.
At the time, the company was still a few years away from perfecting its product and scaling production to meaningful levels. As that reality set in, the stock price took a sharp downturn. After peaking near $6, the stock entered a prolonged decline, hitting an all-time low of $0.175 last year. However, after bottoming out last year, the stock has begun to make a steady recovery.
A Major Turnaround is in the Works
If we look closely at the details and timelines for NEXE, we can see that there is a major turnaround underway.
NEXE has completed its 54,000-square-foot production facility in Windsor, increasing its production capacity to 500 million pods per year. With the sale of its previous Surrey facility for $5.7 million in cash, the company has shifted its focus entirely to Windsor. This new facility enables NEXE to continue its R&D efforts while rapidly scaling production, allowing it to compete more effectively with plastic products on pricing.
NEXE has finally had enough time to perfect its product. 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 but 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.
BPI Certification: The Biodegradable Products Institute (BPI) has completed its verification process and has confirmed that the NEXE fully compostable, single-use beverage pod and its associated components meet the stringent compostable requirements set out by the BPI Institute.
NEXE Innovations has been beta-testing its product in the market under the ‘NEXE Coffee’ brand. However, it seems some investors may have misunderstood the intent behind this. NEXE’s goal was never to build and market its own coffee brand. Why compete with giants like Starbucks, Tim Hortons, or McDonald’s when you can partner with them? The real upside for NEXE lies in private label and co-manufacturing contracts — producing compostable pods for already established coffee brands.
All of this positive progress is signalling to investors that it may be time to jump back in.
Completion of Windsor Facility
In April 2023, NEXE Innovations announced that their 54,000 square foot facility in Windsor, Ontario had been fully commissioned for producing food-grade components for its proprietary single-serve beverage pods. The Windsor facility serves as the company's flagship production facility with a capacity of 500M pods per year. Prior to completion of the Windsor facility, NEXE had been producing pods out of a relatively small (20,000 sq. ft) facility in Surrey, BC. NEXE has moved all of its equipment to the Windsor Facility and has completely wound down operations in BC and sold the facility.
The opening of the Windsor facility is a hugely important milestone for the company as it allows the company to reach maximum production capacity at a single facility in the most efficient and least cost intensive manner.
Some quick napkin math on production numbers can help us get a better understanding of how massive this business will be if production capacity reaches its peak of 500M pods annually, assuming the company is looking at around 20% gross margins per pod.
With a production capacity of 500M pods annually, wholesale prices of $0.30 per pod, and 20% margins on every pod, NEXE is looking at around $150,000,000 in annual revenue with annual gross profit of $30,000,000 if production capacity was to be filled completely and all pods were sold.
Keep in mind that the path to get to full the production capacity of 500M pods will not happen overnight - I expect to see the company reach around 250M pods annually by the end of 2025, and likely reach maximum capacity sometime in 2026 when all 10 machines are up and running. In any case, I think these numbers are certainly within reach by the end of 2026.
In the company’s recent MD&A, NEXE also stated this: "The Company expects that private label and co-manufacturing contracts will reliably fill the production capacity of the Windsor Facility (defined below) as it comes online."
Management believes the interest surrounding NEXE's proprietary compostable single-serve pod continues to gain momentum, and NEXE continues to advance discussions to drive private label and co-manufacturing opportunities.
Ability to Expand Product Portfolio
Last but not least, investors should not forget about NEXE’s ability to expand into other products and verticals. Not only can NEXE produce coffee pods, but they are also looking to expand their product portfolio to include other environmental-friendly packaging solutions such as cosmetics and yogurt cups. There is a huge market for additional compostable packaging products which will only get bigger over the coming years, and NEXE’s production capabilities puts them in an advantageous position when it comes to filling that gap.
Given the increased focus for companies and governments to reduce plastic waste (including the Canadian Government’s recent ban on single use plastics), a rapid increase in demand for compostable alternatives is inevitable.
With NEXE’s manufacturing capabilities and portfolio of IP, they can start producing these alternatives very quickly and in mass amounts. Plus, NEXE’s capacity and ability to set up a vertically integrated manufacturing process should provide them with a cost-effective advantage in doing so.
In an article put out by The Windsor Star, Ash Guglani, President of NEXE innovations, confirmed that coffee pods is just the start of a journey towards more varied environmental-friendly packaging in a variety of sectors from cosmetics to yogurt cups. “Everything we want to do, will use compostable materials,” Guglani said, “Essentially with the investment we’re making here in Windsor, we’re able to compound and extrude the different resins we’ll need for these different products and pretty much shoot it through our injection molding process.”
NEXE is Very Well Capitalized
NEXE Innovations, with a market cap around $38 million, is well-funded to drive its growth plans forward, supported by a cash reserve of $15.6 million and minimal debt of $0.6 million. The company has made significant investments in a fully compostable, vertically integrated facility, preparing it to expand production and make an impact in sustainable manufacturing. This solid financial foundation allows NEXE to continue developing its compostable resin technology, positioning it to meet increasing demand from large-scale clients and paving the way for strong revenue growth in 2025.
Conclusion
To wrap things up, it looks like NEXE Innovations is gearing up for a major breakthrough.
The recent completion of their Windsor production facility and improvements in their compostable coffee pod technology are pointing towards a promising future.
With the capacity to produce up to 500 million pods annually and a solid financial footing, NEXE is set to make a splash in a market that's hungry for sustainable alternatives.
And let's face it — with more and more people caring about what goes into their coffee and the planet, there's never been a better time to bet on a company like NEXE.
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