The drugs policy of the Netherlands is based on two principles:
- drug use is a public health issue, not a criminal matter,
- there's a distinction between hard drugs and soft drugs.
So-called coffee shops are allowed to sell soft drugs openly, and to keep supplies greater than the amounts allowed by law for personal use, though they are only allowed to sell individual customers the amount allowed for personal use. The coffeeshops' wholesale suppliers, however, are still criminalized. In practice the limit of the "for personal use" clause is 4 cannabis plants per person for growing, or possession of 5 grams of hashish or marijuana per person. Example of sentence in 2004 for possession of 360 grams: confiscation and a fine of 750. Coffeeshops pay taxes just like any other business, though there are some special exemptions for them, mostly because they cannot show receipts for their supply of marijuana.
I highly recommend reading the following PDF-file
Cannabis policy, implementation and outcomes (Kamerstuk, 23-4-2004 [92 pag., 630 kB])