2) Those worst humans would still exist, still try to make money out of the drug business. They would undercut prices, do things that ethics otherwise hinder, etc. They will do this by, as today, move drugs outside of the system to avoid taxes, cut the stuff with other substances, etc.
I think the 2) is such a strange argument. Following the 2) argument, are "the worst humans" expected to just stop being the worst humans?
Look at cigarettes. It's legal today, but there are still scum exploiting the situation by black market selling probably dangerous tobacco that doesn't go through QA and regulatory checks etc.