The reason for the Soots and their poor situation is simple. It's their own fault. Normal residents usually avoid this place citing it as low and swarthy. But that's because it IS low and swarthy. But it's low and swarthy because normal people don't go there.
And this is for the same reason that it has been denied guild status. One of the members of the Elder Council, Hugo Mecurius, wants that land. He plans to incite rebellion into a riot, when the Watch and Guard will move in, and pacify the population. He'll then use that as justification to the rest of the Council, to move in, and beautify the area, and displace the current residents and workers, thus allowing him access to whatever his goal was all this time.
While he did not bring the drugs to the area, he certainly helps to support the trade, as it works well into his plan, and gives him another excuse to move against that area.