People caught with banned party pills or synthetic cannabis will be fined up to $300 from next year and manufacturers of 'legal highs' must pay hefty fees to have them approved.
The Government announced on Wednesday that it will cost manufacturers $180,000 in application fees as well as up to $2 million in testing costs for each product they want to sell after August 2013.
Associate Health Minister Peter Dunne says new penalties will include jail terms of up to eight years for anyone found to be selling a banned product.
Under the changes, dairies will be stopped from selling legal high products, only those aged over 18 will get to buy them, and anyone in possession of an unapproved product will be fined $300. The point of sale and advertising will be restricted.
Mr Dunne says he makes no apologies for setting the bar high and placing the costs on the legal highs industry, not the consumer.
"The concern about these synthetic highs has always been, can people be safe using them.
"I think the bar's been set extremely high - the cost figure alone will put off a number of manufacturers and the fact that the process is likely to be a lengthy one - so I think all of these things act as constraints."
Matt Bowden, who consults for and owns shares in a company that makes synthetic cannabanoids, says the hefty fees won't drive legal highs completely out of the market.
"The costs of testing are within the budget for research and development for pharmaceutical companies rather than mum-and-dad coffee shops operating from the back shed.
"But we will see outcomes which will give us safer alternatives to the dangerous drugs, and that's been shown to be the only real solution to the black market and dangerous drugs industry."
Legislation enacting the changes will be introduced later this year.