Sale of tobacco needs to be put in the hands of not-for-profits or health agencies, researchers say.
The radical changes are proposed by University of Otago researchers in a new article in the New Zealand Medical Journal.
Despite recent confirmation of plain packaging and hefty tax increases, they conclude not enough has been done to meet the Government's target for the country to be smoke-free by 2025.
Lead researcher Louise Delany said a new law should set minimum tobacco prices and reduce or remove particular ingredients in tobacco products.
These could include constituents such as nicotine levels, sugars, menthol and other flavouring.
If smoke-free targets weren't met soon then the right to sell tobacco should be greatly restricted, the researchers propose.
"The law would state that, if specific prevalence reduction targets for 2020 are not reached, permission to sell tobacco would be transferred to not-for-profit or health agencies. These agencies would be required by law to reduce sales," Delany said.
The article also proposes the licensing of tobacco importers, wholesalers and retailers.
Asked in May if the 2025 smoke-free target was realistic, Mr Key said his confidence was increasing as there was increasing momentum behind the smokefree movement.
A pack of 20 cigarettes will increase from about $20 now to around $30 in 2020 after hefty excise increases were announced as part of May's Budget.
The tax on tobacco will rise by 10 per cent on January 1 each year for the next four years.
That is expected to bring in an extra $425 million in tax over that period.
It will affect the about 15 per cent of adult New Zealanders who smoke each day - about 550,000 people.
That rate increases to 35 per cent for Maori, and 22 per cent for Pacific people.
Opponents of the tax increases say the tobacco black market will worsen.
On Tuesday, Police seized hundreds of thousands of dollars of tobacco, allegedly stolen from Imperial Tobacco in Petone, Wellington.
The haul was discovered during searches of homes in Hutt Valley and Porirua. Officers also seized more than $60,000 cash and a brand new vehicle.
Nine men and two women were arrested in the busts, 10 of them employees of the company and the other a family member of an employee.
Meanwhile, Associate Health Minister Peseta Sam Lotu-liga this week released a consultation document that includes a proposal to legalise the sale of e-cigarettes in New Zealand.
Nicotine patches and gum can be bought, but nicotine e-cigarette liquid must be bought from overseas.
Other countries, like the UK, allow the e-cigarettes or vaporisers to be sold in supermarkets and dairies.
The products would not be allowed to be used in smoke-free areas, and safety measures including child-proof containers will be considered.
In May, Lotu-Iiga announced plain packaging for tobacco products, which is likely to be in place early next year.