Luxembourg will become the first European country to legalize the cultivation and use of cannabis, the government said in a statement.
Under the new law, Luxembourgish adults over the age of 18 are allowed to use cannabis and grow up to four plants per household, making it the first country in Europe would be to fully legalize the production and consumption of the drug.
Decriminalization will also drastically reduce the current fines for possession of the drug to between €25 and €500 for possession of three grams or less, from the current fines of €250 to €2500.
However, consuming cannabis in public remains illegal.
Trading in seeds would also be allowed under the new legislation, with no limit on the amount or levels of tetrahydrocannabinol (THC), the psychoactive component of cannabis. The policy change is a government effort to tackle drug-related crime and drug trafficking on the black market. Ministers will now be able to regulate the current illegal cannabis market.
One last vote in Luxembourg needed
The new legislation has the support of the governing coalition, but a vote in parliament is still needed to confirm the new proposals.
It puts Luxembourg, a small country with a population of just over 600.000 people, at the forefront of a growing movement across the globe. European continent to relax cannabis laws.
Italy is likely to decide whether to decriminalize cannabis in a referendum next year, after campaign groups manage to collect the required 500.000 signatures needed to force a vote.
The use of cannabis is not punishable under Italian law and marijuana for medical purposes is allowed. However, buying, selling and mass-growing the plant is illegal and dealers can face up to 10 years in prison if convicted.
If the public votes to decriminalize cannabis, the purchase, sale and cultivation of the drug will all become legal there.