It really is not that crazy of an idea. Portugal has done it with some amounts of success, not only in a reduction of drug use but HIV as well.
http://goo.gl/7c4UP9
Just from the home ward I grew up in I knew 5 people who died of overdoses over the last 20 years. One of them was my seminary teacher's son. I also knew and hung out with at least a dozen other people who got into hard drugs in high school. One of them, a good kid and returned missionary, died of an overdose just a few months ago. Drug addiction isn't just something that affects the slums of society. It is everywhere. Our very own Max Hall was busted less than a year ago with drugs and needles.
The problem I see with harsh punishments for drug offenses is that we create a cycle. A user gets busted a few times with a slap on the wrist. They get busted again, this time receiving a felony drug possession. Serve a few months in jail and are released with several thousand dollars in fines and fees. As part of their release they also attend mandatory underfunded State drug counseling which costs them more money. Money that they don't have.
Now that the addict has a felony on his/her record and has spent some time in jail it becomes very difficult to get a job. A job needed to pay the fines/fees that are now owed. Stress builds up and the addict relapses. Eventually they get caught with possession, receive another felony, and this time spend a year in jail. They get released and the cycle goes on and on. At this point, because of the felonies, it is nearly impossible to get a decent job and become a contributor to society. For many an overdose is the only way out of the cycle.
Now I am not 100% sure that legalization on everything is the way to go but something different has to happen. We need to provide a second chance at life and to get back to contributing to society...not a lifetime in the prison system.