The proposed framework - which the public have four weeks to give feedback on - would aim to make safe, quality products in an accessible and affordable way.
A new body, the Medicinal Cannabis Agency, would oversee the scheme, which would be in place by the first quarter of 2020, with products potentially becoming available by mid-2020.
Instead of potency restrictions, medical practitioners would decide what to prescribe, as they already do with other medicines, some of which are considered more dangerous than cannabis.
The manufacturing process would have to follow good practice in accordance with the Medicines Act, with the Ministry of Health having the final say on what gets approved.
But approved products could follow years of clinical trials, so the framework includes licences to sell non-approved products - including imported products - that meet quality standards and can be prescribed by a doctor.
A licence would also be needed to make or supply medicinal cannabis products, or grow cannabis for these purposes.
Those wanting a licence would be vetted by police and would be declined if they had any drug-related or dishonesty convictions in the past seven years, whether in New Zealand or overseas.
But workers in the industry would not have any such restrictions.
Health Minister David Clark said that people, including gang members, with knowledge of how to grow cannabis could participate in the new market.
"One would hope that those who have cultivation experience who've been on the wrong side of the law will see an opportunity to ... make a constructive contribution to society in terms of supplying a medicine that will help people in pain.
"We do need to find ways for people to bring their skills to the table if they have experience in this area for the greater good of the public. I think people would see that as a win-win, generally."
As an added incentive, people with illegal cannabis seeds could seek a declaration and pay a fee which, if approved, would allow them to use those seeds to make legal medicines.
"This may present a real opportunity for exporters where we have unique ingredients or something special in New Zealand that we might want to share with the world, as long as the quality controls around its growth and development are clear," Clark said.
"If we did have a unique competitive advantage in this area, why wouldn't we want to give our exporters a leg-up?"
Hikurangi managing director Manu Caddie, who was part of the committee that oversaw the proposals, said Hikurangi had helped about 100 people involved with cannabis to attend a hemp-growing course at the Eastern Institute of Technology in Ruatoria.
"That's a core part of what we do, particularly around job creation for those whanau that know how to grow cannabis and they're looking for legitimate ways to make an income on the East Coast," Caddie said.
"Lots of them have had convictions, some of them jail time, and most of them would have had some relationship with the plant. Some are very good breeders and have useful varieties that are going to be able to brought into the legal regime.
"They're very excited to be able to do that in a legitimate context, and not fear the law. There's a lot of excitement with this new opportunity."
He said that Hikurangi hoped to be able to have products available from as early as March or April next year.
Clark said more products would come on to the market as more evidence was gathered about medicinal benefits.
"There's good evidence, for example, around MS and nausea for some cancer treatments, but in other areas there isn't much.
"Medical experts will be more willing to prescribe as they have the evidence to support the benefits, and that means it's likely that this market will continue to grow."
The proposals were welcomed by Helius Therapeutics, Cannasouth and the NZ Medical Cannabis Council.
