If “spice” is considered an “illicit/illegal” drug in the Star Wars universe, why does the Empire mine it?

Question

So the first Star Wars (1977) film drops a few solid reference to the drug called “spice” which is described in the Star Wars wikia as:

“Spice was the name for a type of illicit substance or substances in demand throughout the galaxy.”

First when C-3PO states to R2-D2 near the end of the opening scene on the Tantive IV and just before they went into an escape pod:

“We’ll be sent to the spice mine of Kessel or smashed into who knows what!”

Or when Luke retorts to Ben (Obi-Wan) Kenobi in his hut:

“My father didn’t fight in the Clone Wars. He was a navigator on a spice freighter.”

And when Greedo—and later Jabba the Hut as well in the retconned 1997 “Special Editions”—alludes to Han Solo ditching a shipment of something that something such as “spice” when boarded by Imperials:

“Jabba’s through with you! He has no use for smugglers who drop their shipments at the first sign of an Imperial cruiser.”

Which is basically restated—and made clearer—when Jabba confronts Han directly in the scene in the novelization which was added into the 1997 “Special Edition” release of Star Wars:

Han, Han! If only you hadn’t had to dump that shipment of spice! You understand… I just can’t make an exception. Where would I be if every pilot who smuggled for me dumped his shipment at the first sign of an Imperial warship?

But what’s unclear to me is why it seems that the Empire subsidizes—or directly—mines spice if it is illegal:

• Is it a substance along the lines of the way Heroin and Opium is illegal in most countries, but drugs such as Oxycodone/Oxycontin—a chemically similar opiate—is legal with a prescription?
• Is there any in-universe explanation to the economic status of “spice” and whether the Empire’s control of the spice economy is some kind of secretive thing or is it well known throughout the galaxy?

I mean look at the examples I gave and the logical implications of all of them:

• C-3PO describes the “Spices mine of Kessel” as some kind of hard labor camp—akin to the Gulag system in Stalinist Russia—that they would be sent to if the Empire caught them.
• Luke describes his father as “navigator on a spice freighter” in a way that implies it was a basic working class job; like working in the U.S. Merchant Marines. Not something that sounded too illicit.
• The whole Han/Greedo/Jabba mess sounds like straight out drug smuggling with the implication that Han was afraid of the Empire catching him smuggling spice. What? Luke is told his dad was a navigator on a spice freighter and that’s cool, but Han smuggling spice was a risky venture?

Answer 1

According to the canon novel Lords of the Sith, spice has non-recreational uses as well:

The Empire used spice — refined ryll, harvested from the countless mines that made Ryloth porous — and its derivatives for countless purposes, particularly in the Imperial science and medical corps.

^{Lords of the Sith Chapter 3}

As you suggest, this isn't all that unlike prescription medication in the real world; there are circumstances where it's useful and legal, and circumstances where it isn't.

The canon novel Thrawn also indicates that an intermediary form of spice, referred to as "pre-spice" can be refined into several different products; some illegal, some not:

"Pre-spice isn't an illegal substance. There are too many different products it can be turned into that are perfectly safe and legal."

^{Thrawn Chapter 18}

That being said, the Empire certainly doesn't shy away from shady deals; I'm not aware of any canon confirmation of this, but it wouldn't surprise me if the Empire was funding, or even supplying, the spice trade in order to keep certain planets pliable.

Answer 2

Regarding C3PO's comment; I always took him to be rather "chicken little" about life and so I just took his ranting as terrified ravings about what horrible things might happen to them if captured, and he simply names a few things he's scared of. The galaxy is a huge place, so it seems there might be some horrible spice mines somewhere. That doesn't imply that "spice" is some sort of constant substance across the galaxy, or that it's even a major part of the story world. As someone else pointed out, it might be like someone claiming "we'll be sent to the Goulag" and chances are the person saying that doesn't even know what that means, only that it's "scary."

Regarding Luke's comment about his father being a "spice freighter;" I always understood the line as "my father was a pilot on a SPACE freighter" (emphasis mine). If my version is correct, this also suggests that "Spice" as a commodity, is no more or less significant in the galactic empire than any other resource, like uranium or electronic components on our world.

As far as the Han/Greedo mess, there are many things other than drugs to smuggle. Since it's never even hinted at, there's no reason to assume it's "spice" or even drugs. Personally, I always assumed he was smuggling weapons. But hey in the SW universe, he might even have been smuggling food or medicine that the Hutts planned to use to extort some impoverished planet with.