>The current complex distribution and supply network doesn't have to pay taxes because they are already illegal, so they'll continue to charge the current price

This is highly unlikely. It's MUCH cheaper to obey the law than not; as I said in another comment, you may notice that, after the U.S. ended alcohol prohibition, almost no one sold alcohol illegally because it wasn't worth it.

Daniel Okrent's book Last Call is pretty good on this subject.