The government is being urged by MPs to closely consider a system of drugs de-criminalisation pioneered in Portugal.
The Home Affairs Committee said it was impressed with the approach to cutting drug use where people found with small amounts are not always prosecuted.
It also asks ministers to monitor the effects of cannabis legalisation in other parts of the world.
The Home Office rejected its call for a Royal Commission on UK drugs policy, saying that was "not necessary".
Official figures show that drug use in England and Wales is at its lowest rate under current measurements since 1996.
However, there is concern over the growth and prevalence of "legal highs", some of which are banned, amid a recorded rise in deaths linked to their use.
The committee stops short of supporting a relaxation of legal sanctions for drug use, as suggested by experts at the UK Drug Policy Commission in October, but it does call on ministers to look in detail at the idea.
In its wide-ranging report, the cross-party Home Affairs Committee said MPs had visited Portugal as part of attempts to understand different systems of decriminalisation which were being used around the world to manage the harm of drugs, rather than just hand out penalties for their use.
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