The U.S. is starting talks with Cuba to normalize full diplomatic relations and open an embassy, according to U.S. officials. The expanded relationship would also open imports of Cuban cigars somewhat, according to a CNN report.
U.S. President Obama, Cuba's Raul Castro spoke separately at noon ET about relations between the two countries.
Obama plans to overhaul Cuba's policy while Cuba plans to free 53 political prisoners and to allow U.S. debit and credit cards, Dow Jones reported. This follows Cuba's release of American Alan Gross from a Cuban prison where he spent five years on espionage charges, NBC reported.
Cuba and the United States have had a strained relationship for decades. The U.S. first imposed an embargo on Cuba in 1960 and broke diplomatic relations with the country the following year.
Following the news, Herzfeld Caribbean Basin Fund, which invests in countries in the Caribbean Basin, shot up 20 percent.
Read MoreCuba is Venezuela'sbiggest loser
In recent years, the Cuban government has slowly implemented some economic reforms, including letting Cubans buy cell phones and buy and sell used cars.
The president is set to announce a wide range of changes to the government's policy toward Cuba, CNN reported earlier. U.S, travelers will be able to import $400 in goods from the country. This includes up to $100 in alcohol and tobacco, such as Cuban cigars.
While the policy change wouldn't include tourism, it would permit more travel to Cuba, CNN reported.
The U.S. remains Cuba's biggest food supplier. Travel to Cuba is highly restricted.
Cuba is facing extra pressure amid the political and economic turmoil in Venezuela. The South American country accounts for roughly 40 percent of Cuba's trade. Cuba largely depends on highly subsidized crude oil from Venezuela. As oil prices have plunged, the Venezuelan economy has fallen apart, putting pressure on it to reduce aid to Cuba and elsewhere.
—AP contributed to this report