The decree was also signed on Tuesday by Health Minister Alejandro Gaviria, whose agency would help regulate its use, Xinhua reported.
"We have just taken an important step to position Colombia on the cutting edge in the fight against diseases and we are doing that through a decree that seeks to take advantage of the good qualities of cannabis to improve people's lives," Santos said.
He added the new law did not contravene Colombia's international commitment to fighting against drug trafficking.
The decree, jointly drafted by the ministries of Health, Justice and Agriculture, "regulates the... cultivation of cannabis seeds and plants, as well as the processes of production, manufacture, export, distribution, sale, use and possession of cannabis and its derivatives, strictly destined for medical and scientific purposes."
Companies that want to make and sell such products must apply for a license from the National Narcotics Council and the Ministry of Health, and submit their security protocols and business plans, as well as certify the origin of the money invested.
The government agencies will have up to 30 days to approve or reject the application.