The federal government's near-monopoly as the sole distributor of medical marijuana in Canada was severely weakened Monday by a Federal Court of Appeal decision in Toronto.

In a ruling that relaxes the government's grip on the distribution of the drug to sick patients, the court showed it was not swayed by Justice Department lawyers who argued that maintaining the monopoly is the only way to ensure a safe and reliable supply for those in need.

Removing restrictions that leave the government as the sole source would lead to an industry that could develop without safeguards, federal lawyer Sean Gaudet had told a three-judge panel earlier in the day.

Lawyer Alan Young, who represented medical marijuana users, said the decision is "good for the patients."

The government's failed application for review came after it won a stay of a January judgment that effectively ruled that medical marijuana users should have more freedom in picking their own grower.

In January's ruling, Federal Court Judge Barry Stayner struck down a restriction keeping growers other than the government from supplying the drug to more than one patient. Stayner's ruling was put on hold pending the outcome of Monday's hearing on the government's application to review his decision.

The case pitted a group of about 30 users of medical marijuana who tried unsuccessfully to obtain the drug from a small-scale supplier, Carasel Harvest Supply Corp., against Ottawa.

The patients had said the medical marijuana provided to them by the government wasn't of high enough quality to meet their medical needs.

The lawyers for the patients also argued the current laws make it difficult for seriously ill Canadians from obtaining the drug they needed to treat their debilitating illnesses.

But the January ruling that favoured patients was based on weak evidence showing the government's supply was inadequate, Gaudet said.

Restrictions 'arbitrary': judge

Currently, medical users can grow their own marijuana, but third-party growers can't supply the drug to more than one user at a time, a restriction that lawyers for the plaintiffs argued effectively gave Health Canada a monopoly on the distribution of medical marijuana.

Stayner said in his January ruling that the restrictions on the supply of medical marijuana were arbitrary and caused sick users major difficulty in gaining access to the drug.

"In my view it is not tenable for the government, consistently with the right established in other courts for qualified medical users to have reasonable access to marijuana, to force them either to buy from the government contractor, grow their own or be limited to the unnecessarily restrictive system of designated producers," he wrote.

The government has contracted one firm, Prairie Plant Systems Inc. in Flin Flon, Man., to provide the drug to patients.

With files from the Canadian Press