Executive Director Ross Bell unveiled the plan at Parliament this afternoon in an effort to reduce the harm of drugs.
It's estimated illicit drugs cost New Zealand $1.8 billion a year in health, social and economic terms.
Mr Bell wants to remove criminal penalties for personal possession, use and social supply of all drugs, but says commercial supply and trafficking would still be illegal.
Those caught with drugs by police would be cautioned and given health and medical advice, and if they continue to use drugs they would then be assessed by treatment centres to see if they need addiction help.
The proposal also suggests developing a strictly regulated cannabis market, like we do with alcohol and tobacco.
"Learn from our mistakes that we've made with alcohol and tobacco put in strict controls around price marketing who can sell it and use any tax raised from that to reinvest back into the problem,"
The Government's own figures suggest legalising cannabis could collect an extra $150 million a year in tax revenue.