Altria, the maker of Malboro cigarettes, is in talks about a potential takeover of the Canadian cannabis producer Cronos as it seeks to diversify its business beyond traditional smokers.
Cronos shares were up more than 6% in early trading on Tuesday on New York’s Nasdaq exchange, pushing its market value to nearly $2bn (£1.6bn).
Canada legalised recreational use of marijuana this year, and the country is seen as a testing ground for marijuana companies hoping to expand globally as other countries follow suit.
Cronos said no agreement about a transaction had been reached, adding there could be no assurance such discussions would lead to an investment or any other transaction involving the companies.
Altria, which is also the parent company of Philip Morris USA, did not respond to a request for comment.
A deal would mark one of the largest combinations between mainstream tobacco and the booming but volatile marijuana sector, which has attracted interest from a variety of large consumer companies that are monitoring the industry for disruptive threats and faster-growing product possibilities.
In June, the London-based tobacco company Imperial Brands took an undisclosed stake in the closely held Oxford Cannabinoid. Constellation Brands announced a $3.8bn investment in Canopy Growth in August, while Coca-Cola said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil.