First off if it were legal how would there be an increase in illegal activity? There probably would be an increase in drug use if that is what you mean.

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.