Tom Szaky's eureka moment appears to have emerged through a haze of dope smoke. The idea for his $40m (€28m) company, TerraCycle, was apparently inspired by his friends' success in growing marijuana plants. Carefully distancing himself from the scene, Szaky explains that while he was off studying in the US, his friends back in Canada were experimenting with growing their own dope.

"Serendipitously, they started feeding worm poop to their plants and they started doing very well. It was them having this great success because of worm poop, which was made from garbage, that got me thinking about this whole concept of making products from waste."

And so the company's first product was born: a wonderfully organic and effective plant food. In a genius stroke of marketing, Szaky packaged the liquidised worm castings (to use the technical term) in recycled fizzy drink bottles of varying shapes, covered by the TerraCycle logo.

By all accounts Szaky could have charged a premium for this achingly ethical product. But he resisted the temptation and undercut his rivals. After all, the raw materials were virtually free.

Armed with this attractive, if unusual, product, the then 22-year-old Szaky went straight to some of the largest retailers in the US to see if they would stock it. One of the biggest challenges, he says, was getting them to meet him. "We called 10 times a day for 30 days straight. That persistence helped."

Once they were in, the Princeton dropout clearly impressed the suits, and both Wal-Mart and Home Depot started stocking the product throughout Canada and the US.

Plant food was just the start. TerraCycle's product range has now stretched to kites made out of "upcycled" biscuit packets, lunchboxes from juice cartons, and shower curtains from coffee bags, among many other items.

Raw materials are better than free as big brands actually pay TerraCycle to help them deal with their waste. From this, Terracycle pays consumers $0.02 (€0.01) per item of rubbish they send in, plus post and packaging. Szaky says TerraCycle will earn around $6m (€4.2m) this year simply by collecting the materials it needs to make its products.

In August, TerraCycle announced a deal to upcycle waste packaging from confectionary giant Mars Inc's US operations into products ranging from cell-phone holders and laptop sleeves to messenger bags. Mars will also sponsor TerraCycle Brigade programmes, through which organisations can raise money by collecting used packaging from participating brands and sending it to TerraCycle.

Szaky says: "Our experience with companies similar to Mars shows it's possible to reduce packaging waste through partnerships such as this by upwards of 3,000 tons a year." TerraCycle has also doubled its manufacturing facility staff to almost 25 people to handle the new influx of materials, while Mars says it intends to expand the collection programme and the sale of TerraCycle products overseas very quickly.

In the US, the company already has five million people collecting rubbish every day. "It's the average people that do it, that's what I like about it," says Szaky. "I'm sure there's the eco-hardcore people too, but there's just a lot of people who don't like throwing things out sending us their trash."

In September TerraCycle is launching in the UK, Mexico, Brazil and Canada and is in talks with potential corporate partners. In the UK, the company has already struck a 12-month contract with Kraft Foods, one of its partners in the US. Later, Szaky hopes to start selling its plant food and other products in major retailers such as Asda, owned by their old friends at Wal-Mart.

Business is booming, despite the pain most retailers are going through. Sales are forecast to top $12m (€8.4m) this year, and a staggering $40m (€28m) in 2010. Szaky expects to record the company's first profit this year.

Some retailers have cut their orders, he says, but the crunch has not been a major issue.

"I think we can still maintain a 100% growth rate for a while. I would like to maintain or beat that over the next few years," he adds, with the cocky assurance of a young man already worth $3m (€2m).

Szaky started his first business at the age of 14, building websites when the internet was first starting. He and some friends earned up to $20,000 a year. Now 27, his aim is to build TerraCycle into a billion-dollar company. "In five years time we'll be somewhere along the path," he laughs.

"Maybe 10," he adds seriously.

But Szaky is contradictory. Unlike the Google founders, who were determined to remain independent and build their company to the size it is today, Szaky says he would happily sell up. Perhaps unsurprisingly, he has already had plenty of offers, specifically from investment groups.

But will the company's ethical stance survive such rapid growth, or even a takeover by faceless investors?

Szaky believes the company culture is so extreme it will be easy to maintain. TerraCycle does not only have gleaming green credentials; it also takes care over its social impact. The company set up its factory in one of the poorest cities in the US – Trenton, New Jersey. The location was picked for commercial reasons, with the added benefit that it created some desperately needed jobs.

Partly as a result of this, TerraCycle has chosen not to check the criminal records of its employees. Szaky explains: "It's hard to grow up in this city without having a criminal background, that's just the nature of living in a very poor city." Nor does the company impose random drug tests on employees. Whether that is a question of human rights, or for fear of stunting their employees' creative juices is anyone's guess.