The tycoon called for an end to the war on drugs, telling MPs that it had simply failed.
The failure was caused by "trying to deal with it as a criminal problem rather than a health problem", he said.
Sir Richard was among the first to give evidence as the Commons Home Affairs Select Committee launches the first parliamentary inquiry into drugs policy for more than 10 years.
The committee's previous inquiry in 2002, when David Cameron was on the committee as a Tory MP, said drug use was a "passing phase" for many young people which "rarely results in any long-term harm".
The cross-party group dismissed legalisation and decriminalisation as a way forward but, paving the way for future changes, urged ministers to lobby for the loosening of international treaties which prohibit such radical steps.
Speaking more than 10 years ago, Mr Cameron added that the UK's drugs policy "has been failing for decades" and said he hoped the report "will encourage fresh thinking and a new approach".
But the Home Office has already said it has "no intention of liberalising our drugs laws".
Sir Richard is a member of the Global Commission on Drug Policy, whose members include former United Nations secretary general Kofi Annan.
It warned in June last year that major policy reforms were needed to help reduce the prison population and stop wasting millions of pounds.
Dame Judi Dench was among a host of high-profile stars to back the call, saying an "immediate decriminalisation of drug possession" should follow if a policy review showed it had failed.
The Government's official drugs advisers have also called for possession to be decriminalised.
The Advisory Council on the Misuse of Drugs (ACMD) said there was an "opportunity to be more creative" in dealing with those accused of possessing drugs, sending them on awareness courses rather than charging them with criminal offences.
Today's hearing came as new guidelines for sentencing in drugs cases were issued to judges.
Low-level street dealers caught with up to 6kg of cannabis, which could sell for tens of thousands of pounds, and some heroin and cocaine dealers deemed to have played only a minimal role could be spared jail from next month.
And so-called drug mules, who bring narcotics into the country and are often exploited by organised criminals, could also serve less time in prison under the guidelines set by the Sentencing Council.
Sir Richard said switching responsibility for drugs from the Home Office to the Department of Health had worked in Portugal, where not a single person has been jailed for using drugs in the last 10 years.
The change in Portugal came after it had a "massive drugs problem" where "heroin was rampant", Sir Richard said.
He added: "100,000 young people are arrested every year, and the figures are growing, for taking drugs.
"75,000 of these young people are given criminal records.
"By actually moving drugs into the health department and not in the Home Office, if people have a problem, just like in Portugal, they should go in front of a panel to help them."
He admitted he had not read the Government's new drug strategy, which recommends early intervention and help for youngsters.
But he said: "If next year those 100,000 people are not prosecuted for taking drugs, but they are helped, I think the commission would welcome Britain doing that."
Sir Richard added that, if drugs were treated as a health issue, "every single bit of concern would be about the individual and making sure they get better".
Asked about his own admission that he had used cannabis, Sir Richard said: "I would say 50% of my generation had smoked cannabis.
"I would say 75% of my children's generation had smoked cannabis."
Asked about his health, he said: "If I was smoking cigarettes, I would be very worried."
His comments prompted one member of the committee, Labour MP David Winnick, to "confess" that he had never taken illegal drugs.
Keith Vaz, the chairman of the committee, replied: "Can I say to members of the committee there's no need for further confessions. One is enough."
The Virgin founder told the MPs that any of his employees caught taking drugs would not be automatically fired.
"Hopefully we would try to help them if they were taking drugs and find out what their problem is," he said.
"They certainly would not be automatically dismissed.
"There are people in every company who have drink problems, people addicted to smoking, people who take too much marijuana, or even more serious drugs, and need to be helped."
The commission wanted governments to explore alternatives to the war on drugs, Sir Richard said.
"If governments want to go further with cannabis, deregulating and taxing cannabis, they should experiment with that too."
The Virgin tycoon employs some 50,000 people across 300 branded companies worldwide, according to the firm's website.
Mr Vaz quoted the Prime Minister's comments from 10 years ago, asking Sir Richard if he was "heartened that policies were moving in that direction".
"If you talk to any individual in a position of authority or responsibility, they know that the current system is not right and they know that a health-based system is right and they're just worried whether, politically, they can be brave enough to push them (the changes) through," Sir Richard said.
"David Cameron then was not the prime minister. He now is the Prime Minister.
"We hope we can give him the facts to make him brave enough to change public policy for the benefit of society as a whole."
PA
