There were 7,720 children excluded from English mainstream schools in 2016 to 2017, the most recent recorded year.
This works out as 40 exclusions a day and is a 15 percent rise on the previous year.
Drug and alcohol-related exclusions in secondary schools have increased by 57 percent in the past five years.
This is a far higher rate than any other form of exclusion and coincides with increased conviction rates among teenagers for involvement in selling class A drugs.
In the same time period the number of convictions for 15-year-olds selling drugs has nearly doubled.
Sky News has been given rare and exclusive access to two Pupil Referral Units (PRUs), which are set up to educate children who've been excluded from mainstream schools.
The two PRUs — In London and North Yorkshire — house children who have been excluded for a range of issues including drug dealing, carrying knives and beating up teachers.
Critics have said that PRUs are a breeding ground for gangs and a "conveyor belt" for prison, but the teachers and pupils we spoke to denied this, and claimed they do the opposite.
A study seen exclusively by Sky News, compiled by the drugs policy think tank Volteface and the drugs education charity Mentor, warned teenagers have greater access to buying drugs through social media and increasing numbers are also being lured into so-called County Lines drug dealing — where gangs smuggle drugs from large cities into rural areas.
Higher numbers of children are also using newer synthetic drugs, with potentially fatal consequences.
The report's authors said there is an "urgent need" for the UK's education system to adopt a new approach to drug-related issues among young people.
Liz McCulloch, director of policy at Volteface, told Sky News, "If someone is using drugs, or dealing drugs, then that is a safeguarding concern. We should be worried about their well-being and be concerned about that. We should be looking to support them rather than exclude them."
Sky News spoke to a number of pupils at the PRUs, including Amy Collins, 17, an ex-pupil at Grove Academy in Harrogate, the UK.
She said, "I was taking weed, cocaine, all the recreational drugs really. The school didn't really deal with it. They more or less just chuck you out straight away as soon as they find out that you're taking drugs and there's not really much support there in the mainstream schools."
John Warren, head teacher at Grove Academy, said, "I think part of the problem is that schools in many ways are expected to be gatekeepers of social values and social behavioral norms, and society is yet to catch up with the reality of the everyday experience of young people in that drugs being an endemic part of their adolescent experience."
The report warned the increasing rate of exclusions has put PRUs under "significant strain", but also acknowledged the units are better at addressing the issues faced by young people who used drugs.
Many of the children Sky News spoke to said mainstream school were yet to recognize the scale of the problem.
Kyara Baptista, 15, a pupil at Redbridge Alternative Provision in east London, said, "When you walk into a mainstream school you can have weapons on you, you can have drugs on you.
"It's so easy. You see kids sneaking into the toilets then coming out 20 minutes later all high or whatever. The teachers are oblivious to the fact that this is going on."
Sam Walters, head teacher at Redbridge Alternative Provision, echoed some of the concerns raised in the report.
He said, "Blaming PRUs for grooming children into gangs is the same as blaming hospitals for having too many sick people.
"We get a referral through for a young person who has been permanently excluded for having a knife or distributing drugs, let's say. On paper it can read particularly badly. But the truth is that every person who comes to us has a story, and I think our job here is, rather than continuing where they left off from in a mainstream environment, it's about trying to rewind that story and strip back some of those layers."
He added, "A lot of these kids have been through more than most adults in 60-70 years of living, if I'm honest.
"For a young person to witness some of the levels of domestic violence that they may have witnessed, or for a young person to be out on the street and witness one of their close friends dying, is not something that most adults will ever experience."
But many head teachers in mainstream education warn that not excluding children for involvement in drugs would send out the wrong message.
Mark Lehain, former mainstream school head teacher, said, "What I used to ask myself in the cases where I considered expulsion is that if I don't expel a child for this, what would I expel them for?
"You never know how many other children you've saved or prevented from bringing drugs or weapons or other banned things into school by making an example of another child who has done that."