Drugs were a common element in Dick’s stories. Simple legalization of marijuana barely registers in his drug-fueled worlds.
Actually they weren’t. In this regard they were more like any reasonable and moderate government wanting to promote public health. They didn’t prosecute anyone or send them to the camps for smoking or having tobacco in their possession. On the other hand they did increase the tobacco tax somewhat, reduce the amount allowed in soldiers’ rations, and run public awareness campaigns. Many Nazi leaders openly smoked, and there was a period when Hitler promised gifts to any of his inner circle who would quit. I think the gifts were fine watches. But Hitler clearly wasn’t tearing his senior officers’ stripes off if they smoked.
I get most of this from the Wiki article; the Atlantic Monthly article is paywalled.
I saw it when I was in college, too – there probably wasn’t a campus anywhere that wasn’t showing that film back in the 70s! 
There’s considerable overlap in time and in political sentiment between Reefer Madness and the antics of Harry Anslinger, commissioner of the Federal Bureau of Narcotics from 1930 to 1962. Anslinger was a major force in the demonization of cannabis, largely driven by his hatred of Blacks and the perception that Black musicians and other entertainers were the major consumers of it.
The idea of recreational drugs being legal and commonplace was not unique to Dick. In the classic short story Vintage Season, by Henry Kuttner and his wife C.L. Moore, about time travelers from the future, one of the side details is that the travelers bring with them a tea-like potion that sounds like a cannabis-like intoxicant, to which one of them is particularly enamored. Not at all central to the story, but an interesting touch. IIRC, it may have had some relevance in that under its influence, the character revealed to our protagonist hints about why the group was time-traveling.
You may be thinking of the Pure Food And Drug Act, passed in 1906. IIRC this law didn’t prohibit any drug, but it did require the ingredients of medicinal products to be truthfully listed on their labels.
Every generation thinks they invented music and discovered sex.
Except the ones who were “Hopped up on Goofballs”…
Ah yes, the memories of using the the pencil ridge in the center drawer of my college dorm room desk to clean out the seeds…