Legalising cannabis could bring in more than £1 billion a year in tax revenues, a think tank has claimed.
The Institute for Economic Affairs (IEA) has called on Britain to follow Canada and parts of the United States and decriminalise the Class B drug.
The report - called Joint Venture: Estimating the Size and Potential of the UK Cannabis Market - claims the current black market for cannabis is worth £2.6 billion a year with 255 tonnes sold to more than three million people.
Introducing a commercial market for cannabis would lead to savings for the police and other public services, the free market think tank claimed.
In recent weeks, former Conservative leader Lord Hague suggested the Government should consider legalising the drug.
Writing in the Telegraph, Lord Hague, who led the party from 1997 to 2001 and was foreign secretary under David Cameron from 2010 to 2014, called for the party to rethink policy, saying the war against the drug had been lost.
He wrote: “Everyone sitting in a Whitehall conference room needs to recognise that, out there, cannabis is ubiquitous, and issuing orders to the police to defeat its use is about as up-to-date and relevant as asking the Army to recover the Empire.
“This battle is effectively over.”
Separately, the Government has said it will review the medicinal use of cannabis but underlined it would remain prohibited for recreational use.
The IEA said savings to the NHS and other public services from legalising the drug would amount to at least £300 million per annum.
“When added to tax revenues of £690 million, plus new streams of income tax, business tax and VAT created by the legal industry, claims about cannabis legalisation providing a £1 billion windfall to the Treasury seem pessimistic,” it added.
Chris Snowdon, head of lifestyle economics at the institute, said: “It’s high time for reform of cannabis policy in the UK. Canada and the USA are showing the way.
“Done properly, the legalisation of cannabis is a win-win-win: criminals lose a lucrative industry, consumers get a better, safer and cheaper product, and the burden on the general taxpayer is reduced.”