The country would like to see other European countries follow its lead.
Luxembourg will become the first European country to legalise the production and consumption of cannabis - and it wants its EU neighbours to join it.
Health minister Etienne Schneider said the government would relax the country's drug laws because the policy it has had for the past 50 years "did not work".
“Forbidding everything made it just more interesting to young people," he told Politico, as reported by The Guardian.
"I’m hoping all of us will get a more open-minded attitude toward drugs.”
A draft legislation will be unveiled later this year permitting Luxembourg residents 18-years and older to legally buy the drug for recreational use. It is expected to be rolled out within two years.
But under the legislation, it is likely home-growing will be illegal, and there could also be a ban on non-residents buying cannabis to avoid drug-tourism.
There will also likely be harsh penalties for those who break the law, but minors under the age of 17 will not be criminalised for possessing five grams or less of the drug.
Mr Schneider has called on other EU countries follow Luxembourg’s lead and taker a softer approach to drugs.
The Netherlands is famous for having a tolerant drugs policy, where it is still technically illegal to produce, possess, sell, import and export drugs.
However, the government designed a drug policy with tolerates smoking cannabis under strict conditions. Coffee shops are allowed to sell soft drugs and not more than five grams of cannabis per person per day.