Businesses around Australia can now apply for a licence to produce cannabis legally for medicinal purposes only under the Narcotics Drugs Amendment Act 2016, which came into effect on Sunday.
The Act also allows for eligible businesses to manufacture cannabis-related products and conduct related research for medicinal uses.
Federal Health Minister Sussan Ley said the changes will provide patients and doctors across the country with legal options to access safe and reliable medicinal cannabis for treatments.
"Until now, it has been difficult for patients to access medicinal cannabis products from overseas sources," Ley said in a statment released on Sunday.
"These new laws change that situation by providing for a domestic supply of medicinal cannabis products that are not readily available for import."
In the statement, Ley also stressed that the changes do not decriminalise recreational cannabis use.
"It is important that doctors have a wider range of options for treating their patients," she said.
"However, I want to emphasise that the changes to the Narcotic Drugs Act do not decriminalise cannabis for recreational use."
Under the Act, cannabis products permitted for production need to comply with state and territory drug and poisons legislation and are to be classed as therapeutic goods used for medicinal purposes.
In order to hold a licence and commence cannabis production, business applicants will need to pass strict legislative tests relating to security set by the government. All cannabis products will be provided on prescription from registered medical practitioners.