Cigarette maker Altria Group Inc is in early stage talks to acquire Canadian cannabis producer Cronos Group Inc, as it seeks to diversify its business beyond traditional smokers, people familiar with the matter said on Monday.
Canada this year legalised recreational use of marijuana and is seen as a testing ground for pot companies that expect to expand globally as other countries follow suit.
Cronos has not agreed to any deal and there is no certainty it will do so, the sources said. The discussions between Cronos and Altria are expected to last for several weeks, one of the sources added.
The sources asked not to be identified because the matter is confidential. Altria did not immediately respond to a request for comment, while Cronos declined to comment.
Cronos shares listed on the Nasdaq rose 23% to $11.32 in Monday afternoon trading after Reuters reported on the deal talks, giving Cronos a market value of more than $2 billion.
Other Canadian cannabis stocks also jumped. Tilray Inc shares rose 4%, while New Age Beverages Corp shares soared 10%.
Booming But Volatile
A deal would mark one of the largest combinations between mainstream tobacco and the booming but volatile marijuana sector, which has seen interest from a variety of major consumer companies that are monitoring the industry for disruptive threats and faster-growing product possibilities.
In June, London-based tobacco company Imperial Brands Plc took an undisclosed stake in closely held Oxford Cannabinoid.
Constellation Brands Inc. announced a $3.8 billion investment in Canopy Growth Corp in August, while Coca-Cola Co said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil.
Decline In Smoking
Altria's shares have fallen by more than 20% over the year, as cigarette smoking continues to decline in the United States. Federal data from earlier this month showed cigarette smoking among US adults reached an estimated 14% in 2017, the lowest level ever.
Altria has invested in the e-cigarette sector in recent years through its Nu Mark subsidiary. It is also in talks to take a minority stake of between 20 and 40% in e-cigarette maker Juul Labs Inc, sources said last week.
Big tobacco companies such as Altria have been investing in e-cigarettes as US tobacco smoking rates decline.