Guatemala could present a plan to legalise production of cannabis and opium poppies towards the end of 2014.
The country is hoping the move will curb the power of organised crime, President Otto Perez said.
The move would see the country follow in the steps of Uruguay. Which passed historic legislation late last year – becoming the first country in the world to make the production, sale and possession of cannabis legal.
Guatemala has yet to put forward a concrete plan on how it could be done.
Instead, a government commission has been studying the proposal, and Perez told Reuters in an interview that he expected the recommendations to be published around October and that measures could be presented at the end of the year.
Those measures could include an initiative for Congress to legalise drugs, in particular marijuana, he said.
"The other thing we're exploring ... is the legalisation of the poppy plantations on the border with Mexico, so they're controlled and sold for medicinal ends," Perez said. "These two things could be steps taken on a legal basis."
Opium poppies are used to make opium, heroin and pharmaceutical drugs such as morphine and codeine.
Guatemala, a major coffee producer which is one of the most violent countries in the Americas, has suffered from incursions by violent Mexican drug cartels in recent years.
The drug gangs have been under sustained pressure at home since the Mexican government launched a military-led offensive on organised crime at the end of 2006. More than 85,000 people have since died in Mexico in cartel-related violence.
Mexico, which made possession of tiny amounts of narcotics legal in 2009, has so far been hesitant to go further on liberalising drug laws, though pressure is growing.
The Party of the Democratic Revolution, a leftist group that runs the local government of Mexico City, is pushing a number of initiatives to decriminalise marijuana.