Well no it wouldn't put all the thugs out of business, the same as liquor stores have not put an end to people making and selling moonshine. Sure it would have an affect, but there illegal drugs are still going to be an issue regardless.
And the point is, why would the US make a legal business out of drugs like cocaine and math? They have zero medical benefits at all. You're best argument is tobacco. But chewing/smoking tobacco has the most regulations of probably any industry in the US and has been fairly common for centuries. And despite the financial benefit the US could see from promoting tobacco use, the US seems to be doing more and more to shrink that industry as well.