The Defence Force has confirmed five soldiers have been discharged after taking the psychoactive drug, NBOMe.
The men had to be physically restrained during an incident in Palmerston North six weeks ago.
Three other soldiers will face court martial.
The Drug Foundation says while the effects of NBOMe can be devastating, it's not even an illegal drug.
A woman who was out with the group of eight Palmerston North soldiers on Labour weekend was so concerned about their behaviour that she called police, after one of the men knocked out his own teeth.
The men had to be physically restrained and were all subsequently taken to hospital.
NBOMe is a hallucinogenic drug designed to mimic LSD and is often sold as LSD; however it is cheaper to make.
All the soldiers were under the age of 25 and may now face the end of their military careers, but Drug Foundation executive director Ross Bell says if civilians were found with the drug in their possession, they would face a maximum penalty if $500.
"Technically at the moment NBOMe is not an illegal drug, it's scheduled under our new psychoactive substances act as an unapproved product."
But according to United Future leader Peter Dunne, that classification is set to change.
"I think more severe penalties ought to apply, and that's why I want it re-classified under the Misuse of Drugs Act."
Chief of the New Zealand Army, Peter Kelly, says there's no place in the army for drugs.
"We have to have trust in our people, they have to trust the people beside them, if people use drugs you erode that trust."
Police wouldn't comment on the investigation or confirm whether anyone has been charged over supplying the NBOMe.
The three soldiers who haven't already been discharged from the army face court martial early next year and could be sent to jail.