Some drugs are still going to be cheaper from the illegal market. Criminal gangs don't pay tax; sometimes use slave labour; don't have the best quality control; etc.

See also the amount of counterfeit and smuggled cigarettes in the UK.

True but the effect is likely to be fairly small. It's probably better to compare legalization of most drugs to the end of prohibition. That saw a collapse in crime and incarceration rates back towards (although admittedly not all the way down to) pre-prohibition levels which only picked up again with the war on drugs.

If you don't trust that comparison, how about looking at the actual real world effects seen recently in Western countries such as Holland and Portugal that have tried this.

Yes, but it's still a problem.

UK customs agents seize about 1m cigarettes per day. There are about 10m smokers in the UK, so if they smoke about 20 a day that's about 200m cigarettes per day. 1m isn't much compared to that. But it's still there.

(But I do strongly support legalisation of drugs. I just think there's some stuff to be learnt from UK)

The black market is a natural limit on the "effectiveness" of sales taxes. High enough taxes constitute de facto prohibition, especially for poorer segments of the market. Thus a high enough tax can't really be justified by the goals of collecting funds or discouraging vice. The criminal activity is the point; how else could they justify employing so many more police than a rational system of laws would require?