The government could still fight it, but it would be a health and human services problem at that point. Which means a lot less high stakes do anything to not get caught crime going on. It could be paid for by taxes on the drugs. There would be fewer deaths from drug overdoses because quality and purity could be regulated. Drugs with little to no long term side effects would probably become popular. Drugs that have harsher side effects and highly addictive properties would probably still be stigmatized because of their effects.
The line would get drawn the same place it does for gambling and alcohol. Occasional use by grownups is OK, if it becomes life impacting then rehab and abstinence is probably best for you.
I think the hypothetical here is that illegal activities could rise in search of money to feed drug addiction. This would come in the form of theft, robbery, etc. It's not as if no one ever stole money to buy food.
No. We have decades of experience on this from places like Portugal, The Netherlands, California, Washington State, etc. In fact, the opposite happens. The problem is that no one bothers to ever check facts before making assumptions about what will happen that fly in the face of the evidence, especially when writing laws.