The report by the Institute for Social and Economic Research said a lower cost of policing, criminal justice and drug treatment by a move to a regulated market for cannabis in England and Wales could save £200-300 million.
Meanwhile, tax revenue from licencing the drug could raise between £0.4 and 0.9bn, according to the paper, co-authored by Stephen Pudney, professor of economics at the University of Essex.
Overall, licenced cannabis could reduce the deficit by between £0.5bn and £1.25bn, the report said.
The so-called “gateway effect” – the possible increase in risk of involvement in hard drugs caused by exposure to cannabis – had been a “greatly exaggerated” focus of public debate on the issue, the study claimed.
It is likely that consumption could rise significantly as a consequence of the switch to legal status, it said.
But it is possible that average potency would fall, with consumption of the psychoactive ingredient THC rising much less than consumption of the drug itself, and possibly even declining, according to the report.
Prof Pudney said the report was not a definitive attempt to put a price on the cannabis market, but looked to outline factors to consider if such a policy were to be introduced.
“Two important areas of uncertainty where progress may be possible are drug-related crime and drug demand behaviour, but it would require greater sustained investments in data and research effort,” he said.
Amanda Feilding, director of the Beckley Foundation, which campaigns for reform of drugs policy and commissioned the report, said: “In these times of economic crisis, it is essential to examine the possibilities of more cost-effective drug policy.”