What about side-effects? Will the government allow drug sellers to peddle drugs with the well-known side effects we see in drug heads?
No FDA involvement ... they'll be regulated like the legal drug tobacco.
Why believe that drugs manufactured by our drug companies with their high expense of R&D, sales, distribution and getting approval from the FDA, will be sold cheaper than drugs sold on the street that come out of a meth lab in a cellar, the jungles of Columbia the poppy fields of Afghanistan, Burma, Turkey, etc?
Because the price of the drug alcohol dropped sharply when Prohibition ended. The costs of operating ilegally far outstrip the costs you mention, especially when you factor in the economies of scale enjoyed by legal makers.
How will taxes be collected from illegal drug sellers?
There will be few if any illegal drug sellers, because they can't compete with legal sellers for the reasons mentioned above.