Mr Key also revealed that one of the reasons the Ministry of Health-backed testing regime was not yet ready was because Cabinet was uncomfortable about the regime's proposed testing on animals.
The Prime Minister said he did not believe the decision to remove the remaining 41 drugs from sale - after giving them temporary approval - was a U-turn.
"What I'm prepared to admit is ... in hindsight, we probably should have taken the ultra-conservative view and said 'no, we'll get rid of the whole lot in one go'."
When the Psychoactive Substances Bill passed last year, it cut the number of retail outlets from 4000 to around 150.
Mr Key said this had the perverse effect of concentrating the problems related to the drugs to one or two outlets in provincial areas.
"The number of products went down, the number of shops that could sell them dramatically reduced; in fact it just highlighted the issue in these kind of places."
He rejected a call from New Zealand First for Associate Health Minister Peter Dunne to resign, saying Mr Dunne had shepherded in legislation which was still "totally valid".
Mr Key said there was some debate about whether the 41 remaining products were responsible for the health problems that were being observed.
He said some illegal substances may have been repackaged for sale, and some addicts may have been telling health officials that they had been taking legal highs to avoid admitting to illegal drug-taking.
"But in the end, I think we've got to have a clearer way through this, and the clearer way through is to ban everything, then make the manufacturers prove that there's no harm."
He added: "That will be a long and very expensive process, and if you want my view, I hope none of the products actually make it."
Officials estimated that the testing regime would not be in place for 12 to 18 months, after which time drug-makers would still have to wait a long period for their product to get the green light.
Asked why it was taking so long to put in place, Mr Key said not all of the proposals for the regime were acceptable to Cabinet.
"I don't agree with the animals they want to test on."
The Prime Minister would not reveal which animals could be tested on. He said some people were comfortable with testing on rodents but not rabbits, and it was "a very vexed" issue.
Mr Key noted that testing on rodents did not find problems with the highly controversial drug thalidomide, but testing on rabbits may have picked up defects.
Animal testing was already used for pharmaceutical drugs, but these were designed to save lives, not create drugs for personal enjoyment.
The Labour Party, which supports the Government's ban, would block the use of any animal testing as part of the psychoactive substances regime.
- Isaac Davison of the NZ Herald
