The Government has hosed up every program they have ever created. If it's legalized keep it private but tax it like cigs and liquor..generate billions in revenue but then you have to be worried about what they would do with the money. I think the best option would be to legalize for personal consumption and personal production. This would greatly reduce the smuggling (and violence, corruption, etc. that goes with it) and leave the control in the hands of the user/growers. It would, however, require the same regulation as alcohol with regards to DUI, selling to minors, etc.
If the private market gets involved they would need to be watched like a hawk so they don't pull the same "what can we add that will make it more addictive" crap they have pulled with tobacco products.