This is a good question.

Vito's wealth came from gambling and unions. Michael at the end of GF pulled up stakes and moved to Nevada, presumably to focus exclusively on legal gambling by owning or controlling casinos. He denied ownership during his Senate testimony, but as Geary said to him earlier, "You own or control three hotels" and was trying to get into a fourth. They would have provided him with enough wealth (especially if he was skimming the profits) to set him up in that Tahoe estate. I'm also guessing that since Pentangeli (and Clemenza befor him) were caporegimes in New York under Michael, he was receiving tribute from their NY operations. That money could have been very substantial since Michael had whacked the heads of the other families in 1955, thus weakening competition in NY.

The mystery is how he got so fabulously wealthy by 1979, at the beginning of III. He had a foundation that was able to give $100 million in charity to Sicily, and he was able to lend the Vatican Bank $600 million--even after "he sold the casinos," as Dominick Abbandando told the press (and as we know from II, never got Roth's Havana holdings).

Vito never was into drug dealing--he reluctantly agreed to provide police and political protection to the other families who were dealing drugs. He got a "fee" for providing those services from the other Dons, but since he agreed to do it from a position of weakness, the fees probably didn't amount to much. I can't see Michael connected to the drugs business in any way because it was too dangerous to his attempts to appear "legitimate."