TORONTO - A Federal Court of Appeal decision on Monday that upholds a lower court ruling loosening Ottawa's tight grip on access to medical marijuana is being reviewed, the federal government says.

A three-judge panel dismissed an appeal from government lawyers who argued Ottawa's monopoly on medical pot was the only way to provide a safe and reliable supply.

The panel strenuously challenged arguments made by Justice Department lawyer Sean Gaudet that there was a lack of hard evidence to back up a Jan. 10 decision by Federal Court Justice Barry Strayer.

"We're not persuaded (Strayer) committed any error," Justice John Evans said in the ruling that came just hours after the government had started laying out its case.

Strayer's decision, which noted fewer than 20 per cent of patients actually use the government's supply, also struck down a provision limiting one grower of medical marijuana to supplying just one user.

As well, the judges rejected a request for a one-year delay to enforce their ruling in order to give the government time to come up with an alternative solution.

Gaudet declined to comment after the ruling, but a spokeswoman for Health Minister Tony Clement said the government is studying the decision.

"We will review it, and respond accordingly," Laryssa Waler wrote in an email.

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

He said Health Canada could now determine on a case-by-case basis how many patients a grower could supply. Or, he said, the government could come up with a new limit, which could send the case back to court.

One key government argument challenged by the appeal panel was that the federal supply policy established in 2003 ensured there was an effective, legal supply being provided to users.

"The problem with the policy is it's just a policy," said Justice Karen Sharlow. "The government can rip it up ... tomorrow."

The judges also challenged Gaudet on the lack of hard statistical evidence on whether government-provided marijuana met the medical needs of users.

"I don't see that," Sharlow said. "That troubles me."

Justice Michael Ryer questioned whether the government petitioned buyers to determine what they required.

Gaudet conceded there wasn't a conclusive study from Health Canada on the issue.

The government argued that allowing one grower to supply a large number of users creates security risks, but that logic was rejected by Young.

"They're saying that it's easier for them to control 1,600 individual grows ... as opposed to consolidating into maybe 30 large grows," Young said.

"That just doesn't make any sense."

Before the January ruling, medical users could grow their own pot but growers such as Carasel Harvest Supply Corp. couldn't supply the drug to more than one user at a time.

"The question isn't whether the government's medicine is good, the question is whether the government has acted arbitrarily in restricting patients' choice," Young said.

"God forbid we get into a situation where government's going to dictate to us whether Aspirin or Advil is the painkiller of choice."

Ron Marzel, a Toronto lawyer who brought the matter before the Federal Court, also said the government didn't properly consult with stakeholders before implementing its supply policy.

"Then they receive complaints from patients ... (and) they still entrench the policy," Marzel said.

Users of medical marijuana on hand for the decision were delighted.

"I can't always get what I need," said former corrections worker Alison Myrden, 45, of Burlington, Ont., who suffers from MS and another affliction that causes severe facial pain.

Myrden said she has to go to the street to get a strain of marijuana called "William's Wonder" to properly treat the latter condition.

"We've asked for (the government's) help for years, and they still pass us off like a political football," Myrden said.

"This is a wonderful decision in our favour," said Marko Ivancicevic, 27, of Toronto, another licensed user of medical marijuana. The substance has helped increase quality of life "100-fold," he said, adding that the government produces a product of "subpar quality."

Health Canada guidelines posted in 2006 state that potential users must indicate when they apply for a licence to possess medical pot if they plan to access the government supply, grow their own or designate someone to grow it for them. In the latter case, a designated person production licence must also be obtained by the grower.

Health Canada had said it planned to eventually end its licensing of homegrown weed, which would force all medical users to buy their supplies directly from Ottawa, perhaps through pharmacy distribution.

Saskatoon-based Prairie Plant Systems has been running the government-approved pot-growing operation deep in a northern Manitoba mine since it won the contract in 2000. It is bidding to keep the contract, which expires at the end of October.

Organic growers from Vancouver Island, like Eric Nash of Island Harvest, also hope to bag the new federal contract with the promise of supplying better, cheaper and different varieties of weed.

"I can guarantee you (Nash is) on the phone right now saying, `What's happening with the application for my 75 patients?"' Young said.