Mafia has been dealing drugs since Day One. But, heavy penalties for drug dealers presents a dilemma for real Dons. On the one hand, a Mob guy caught dealing drugs and sentenced to double-digits is tempted to rat out higher-ups (per Solozzo to Vito). On the other hand, Mafia is a pyramid scheme, with a portion of each associate's or made-man's earnings kicked upstairs. If the Dons really enforced a ban on drugs, they'd be driving the traffic (and the profits) underground.

So they reacted with typical Mafia hypocrisy: They decreed death for anyone in the Borgata caught dealing drugs. If you were caught, they'd turn heaven and earth to kill you before you could testify against them. If you weren't caught, and kicked good money upstairs, well...what the Dons didn't know wouldn't hurt them.