"The war against drugs has failed," said Senator Roberto Conde as he presented the bill on behalf of the ruling leftist Broad Front, calling it an "unavoidable response" to that failure.
The bill, which passed the lower house of Congress in August, was assured of passage in the Senate because the ruling coalition controls both chambers.
It will authorize the production, distribution and sale of cannabis, allow individuals to grow their own pot on a small scale, and provide for clubs of consumers -- all under state supervision and control.
It goes well beyond the marijuana legalization measures recently approved by the US states of Colorado and Washington, or the similarly liberal laws of the Netherlands and Spain.
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Under Uruguay's proposed law, consumers over the age of 18 will be able to grow their own marijuana, though no more than six plants per person. Or they can get it through clubs or buy up to 40 grams per month from pharmacies.
In every case, they must be registered with the government.
Uruguay's opposition parties are all against the measure, as are pharmacists, who reject the idea that marijuana will be sold in drug stores.
There is widespread public skepticism as well in this small country of 3.3 million. A poll taken in September found that 61 percent disapprove of the law.
Passage of the law will "diminish the perception of risk and foster consumption, especially among children and adolescents," said Senator Alfredo Solari of the opposition Colorado Party.