Peter Dunne's war on the failing war on drugs itself appears to be failing, with the Prime Minister refusing to even consider the United Future leader's proposals.

Mr Dunne - who is also the Associate Health Minister - wants Class C drugs such as marijuana moved from being covered by the Crimes Act to the Psychoactive Substances Act, paving the way for a regulated legal market in soft drugs.

He says this would slow the fast-rising prison population, make it easier for people to get help and take away a large chunk of gangs' incomes.

"Before you can submit a product for testing, the manufacturer has to be deemed to be a fit and proper person - in other words, a legal test as to whether you're a goodie or a baddie," Mr Dunne told The AM Show on Monday.

"The gangs would fail that test."

The first step would be a move to the Portuguese model, with money currently spent on finding and prosecuting drug users instead diverted into the health system.

"The possession, the distribution and the use of all drugs remains illegal, but for low-level drugs - and cannabis would come into that category - if you're caught with up to 10 days' supply, you're automatically referred to treatment," he says.

"It's like a form of diversion... if you fail treatment or you refuse to take that up, then obviously the criminal sanctions apply."

After a decade of this model, Portugal saw criminal convictions and drug use drop, rather than rise. Mr Dunne suspects this is because once marijuana is legal, its appeal wanes.

"I suspect if you've got products that are tested and proven to be low-risk, a lot of the attraction in them goes away anyway."

The next step he reckons would be legalisation under the Psychoactive Substances Act.

"The old war on drugs approach has failed - we don't use that language anymore," says Mr Dunne. "This is a health issue far more than it is a legal issue, therefore we need to actually start treating it as such."

No way - English

Standing in Mr Dunne's way is his ministerial boss - the Prime Minister. Bill English says Mr Dunne is "making a lot of assumptions" about a drug that "does real damage to people".

"We don't want to encourage open trading in cannabis and a whole industry around it," he told The AM Show.

Mr English says the impact on gangs would be minimal, as they have other criminal avenues to make money, while Customs and police are "doing a much better job now" of intercepting drugs before they hit the streets.

Despite his unwillingness to make any changes to drug laws, Mr English does agree with Mr Dunne that the so-called war on drugs can't be called a success.

"It's failing if one person is having their lives wrecked, or wrecking their family's lives with drugs. You can never say it's succeeded - put it that way. There's always more to do."

Mr Dunne in unfazed by Mr English's position, saying his own views are not those of the Government.

Expert backing

Associate Professor Chris Wilkins of Massey University says Mr Dunne's approach might not be a bad idea.

"I think New Zealand needs to start having a serious discussion and develop some evidence and get some expert opinion about where we should be heading, rather than just taking a kneejerk reaction that might come out of an election or a particular politician's approach."

Prof Wilkins says he's been working on a draft regulatory model that will be released in the next week.

"It's important that some of the money from the cannabis industry gets earmarked for drug treatment, for drug prevention. The model we've been working on goes down that route."

New Zealand wouldn't need to reinvent the wheel either, with several other countries years ahead in decriminalisation.

"Eight states in the US have legalised the supply and use of cannabis. Canada will legalise use and supply this year. There are a lot of innovative approaches out there, so I think it's something definitely we could discuss and debate."

Newshub.