31/10/2016 1:09 PM AEDT | Updated 02/11/2016 8:08 PM AEDT

Budding Industry: Australia To Capitalise On Medical Marijuana Changes

But the full picture might not be known for years.

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The activation of federal laws allowing businesses to apply for medical marijuana cultivation licences will kick start the new industry in Australia, but it could be years before the full extent of the potential economic benefits of the multi-billion dollar business will be realised.

Following the laws coming into effect on Sunday, a number of established companies -- Canada's Tilray, Bedrocan Australia as well as MGC Pharmaceuticals and AusCann -- are expected to apply for cultivation licences, with some companies hoping to plant a crop by the middle of next year.

Sydney University Business School's Michael Katz said that despite the enthusiasm, levels of domestic demand for medical marijuana are still unknown and heavy regulation and high levels of compliance will make it tough for some smaller companies to be sustainable.

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Under Commonwealth law, medical marijuana licensees must pass strict 'fit and proper persons' requirements and other legislative tests relating to security.

"What we're seeing is the creation of a brand new industry, with relatively low knowledge of what that means for industry, for the economic participants, for the community," he told the Huffington Post Australia.

"One of the interesting things is going to be over the next 24 months, not just how the industry starts off but how it evolves over the next 24 months, as the government realises what works and what doesn't, as businesses enter and exit the market.

"You're going to have a surge into the market, it's going to be difficult, and then what you're going to find is the government is going to revisit regulation of the market."

THC (tetrahydrocannabinol), the active ingredient in marijuana, is pictured here being extracted for medical use in a U.S. laboratory

Katz previously authored a study -- Medicinal Cannabis in Australia: Science, Regulation & Industry, produced in partnership with medicinal cannabis company MGC Pharmaceuticals -- which showed Australian demand for medical cannabis could be as high as 8,000kg and worth more than $100 million per year.

Australia would need a space three times the size of the Sydney Cricket Ground -- about 51,000 square metres -- of greenhouse space to produce the amount of cannabis required to meet demand.

AusCann's Managing Director Elaine Darby told the ABC the company was hoping to a have a crop planted in Western Australia by the middle of next year, and it wants to begin supplying finished products by the end of next year.

Victorian Premier Daniel Andrews at Victoria's secret medical cannibis lab, in August.

"Initially, AusCann's products will be used in some of our clinical studies as well as provided to clinicians who wish to provide from the outset and the key demand areas at this point seem to be chronic neuropathic pain and treatment-resistant epilepsy," she told the national broadcaster.

Tilray, which owns one of the largest legal medical cannabis cultivation centres in the world, welcomed the government's legislation.

The company is supplying several patients with medicinal cannabis medication through the Therapeutic Goods Administration (TGA) Special Access Scheme, as well as supplying a clinical trial funded by the NSW Government.

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Cannabis plants growing inside a facility in New York state, U.S.A. Lawmakers voted in 2014 to legalise marijuana for medical use, and the law took effect in January 2016. Currently, just five companies are allowed to grow and sell the drug for medical use in the state.

"The passage of this legislation will allow Tilray to establish commercial operations to supply a locally produced product, which will bring significant investment to Australia and generate local employment opportunities," said Tim Drury, Australian Director of Tilray, in a statement.

Katz told HuffPost Australia that the federal laws put Australia in a prime position to enter the multi-billion dollar global Medical Cannabis market.

"Most of the other countries are driven at the local level, and federally less so," he said.

He said Australia is in a prime position to take advantage of the global market, because of its high levels of supply chain logistics, space, land and reputation.

"I think Australia will be in the position where supply to the domestic market will eventually be profitable, but I think the real gravy will come from the opportunity to supply into a global market," he said.

"That's when you'll be moving from an industry in the 100s of millions (of dollars) into the billions."

    In April, Victoria became the first Australian state to legalise medical cannabis for children with severe epilepsy. The government of Daniel Andrews has set up a secret cultivation lab to test the product.

    In early October, medical marijuana laws passed in Queensland, allowing some people who suffer from conditions such as severe epilepsy easier access to treatment.

    Medical cannabis will be treated as a prescription drug in WA from Tuesday.

    The federal government says the sale of cannabis for recreational use will remain illegal.