1) Recreational use of drugs remains illegal, but that doesn't mean they're not popular. That popularity has only increased in the past decades, coinciding with the declining health and morale of the population. Everyone is generally feeling bleaker, sicker, drawing in those who might otherwise not have been interested. It's a thriving business opportunity!
2) Illegal distributions are on an individual level, with some family-run enterprises. Some are loosely aligned with one another, in the sense of mutual avoidance and non-interference. Attempts to unify into some manner of organized, broader-reaching syndicate have thus far failed- as anyone who's tried has naturally thought to set themself at the top of it, but has lacked both the resources and the charisma to stay there.
There's persistent rumors that it's Patho-Gen themselves who are responsible for the smuggling, if not the direct distribution. There's other rumors that suggest that they're the reason why there's been no successful banding together of the local criminal types- that they've been sabotaging any attempt towards organization. Whether it's true or not, anyone who tries to organize sees their drug supply soon cut off, stolen, or otherwise tainted.
Bonus) There is an extensive sewer structure. It is not particularly well-maintained, with sections of it having not been updated in 50-70 years. This has led to significant waste due to leaky pipes, and the city is not that far off from it breaking catastrophically. Fixing it would be very expensive though, and no one in government wants to be on the hook for that.
There are also transport tunnels in addition to the sewers, with some points of connection between them. They are also not in great shape, are dirty, unsafe- to the point where few people even attempt to live down there, despite the housing shortage. The deeper beneath the city you go, the more arcane radiation has its effect... as the Karterian barrier doesn't extend down all that far. One more reason for maintenance to be tricky!
There's also some abandoned beginnings of what had been intended as an underground subway network, to further supplement the above-ground tram network. The project was put on hold a few years before arcane radiation effectively closed Karteria's borders, and was canceled entirely a few years later. The primary culprit is considered to be a lack of resources, and some issues with ground stability and flooding. A couple of partial-stations and unused tunnels remain as hollows underneath the city, but their entrances have been (supposedly) sealed off.
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