> Drugs aren't harmless, and we shouldn't pretend like they are
Agreed, but IMO the "war on drugs" has caused far more damage than drug abuse. While there are recreational drug users they tend not to be drug abusers. Rather drug abuse usually tends to be caused by erroneous self-medication. We could help these people.
The war on drugs tears our society in half by forcing people who might otherwise use drugs in a recreational manner into a counter-culture where they feel alienated. This alienation leads to mental health disorders which are treated through self-medication which causes even more problems and a vicious cycle begins.
While I generally agree with the rest of the items in your list, prison is the second best place for mentally ill offenders, with a dedicated psychiatric hospital being the best option if available. The problem is that they're isn't space at psychiatric hospitals--they're always at capacity.
Most of that disparity has been created since the Reagan administration's "war on drugs".
Drugs aren't harmless, and we shouldn't pretend like they are. Nor should we operate under the fantasy that treatment and rehabilitation are enough. Many of the mentally ill in prison are mentally ill because the drugs they abused ate holes in their brains, which is something that no amount of treatment will fix. When I was a public defender, the % was about 75% of MDOs were drug-induced mental illnesses, with the remainder being inherent (i.e., genetic) or trauma-induced mental illness.