Research Summary To reduce individual and social harms, most nations prohibit certain psychoactive drugs. Yet, prior scholarship has suggested that prohibition reduces illicit drug sellers’ access to law and thereby increases predation against and retaliation by them. No prior study, however, has directly tested that theory by comparing drug sellers of different legal statuses operating in a single place and time. This study analyzes rates of victimization, legal mobilization, and violent retaliation in three retail drug markets in Amsterdam, the Netherlands: the legally regulated alcohol trade of cafés, the decriminalized cannabis market of “coffeeshops,” and the illegal street drug market. Results from interviews conducted with 50 sellers in each market indicate, as expected, that illicit drug dealers have the highest rates of victimization and violent retaliation and the lowest rates of legal mobilization. Contrary to expectations, we find coffeeshops experience less victimization than cafés and have similar rates of violent retaliation and legal mobilization. Policy Implications Our findings suggest that state regulation of drug markets affects victimization and conflict management of sellers, but the relationship does not seem to be linear. Prohibition undercuts the state's regulatory capacity by producing zones of virtual statelessness in which formal means of dispute resolution are unavailable, and thus, victimization and retaliation are more common. At the other extreme is laissez faire regulation, which may make sellers more likely to address problems only after they occur (instead of preventing their occurrence). The Dutch government originally instituted coffeeshops as a harm‐reduction method meant to separate the market for cannabis from that of hard drugs. The policy also seems to work well when it comes to reducing victimization, perhaps by encouraging the use of preventive measures by coffeeshop owners and employees. The Dutch experience offers lessons for drug policy reforms elsewhere.