Governmental regulation fails big time. Look around you. If you want drugs you can easily obtain it.
The fact that California weed is driving down weed prices should give you an idea that import isn't necessarily better competition for "legitimate" sources. The less regulation a place has on a certain transaction, the more likely all of the transactions will start occurring there. If USA can become the "off-shore" so to speak for drug production then USA would get an economic boost from drug production.
"Honest living" as much as making alcohol, cigarettes, and etc are "honest living" right now and providing jobs for people.
If everyone can just get their supplies from legitimate sources what would be the need for drug rings as middlemen to smuggle? Of course some of the institutions will stay in place but the majority of the smaller regimes would fall.