The answer is in GFIII. When Zasa comes to the party to speak to Michael about Vincent, Michael hauls Vincent into the den and Vincent tells Michael that Zasa has turned the old neighborhoods into a "sewer." Later when Vincent talks to the two old ladies in the neighborhood, one of them says that Zasa's people are selling "dope to our children." Then in Atlantic City after Zasa receives no money from Michael, one of the points of contention is brought up by Michael when he asks Zasa whether or not he guarantees his people "don't deal drugs in thise neighborhoods."

This tells me that Michael was still operating under the arrangement agreed upon by Vito. Drugs could not be sold to children and not in the Italian neighborhoods.

No question Michael did not directly involved himself too much in the day to day operations of the olive oil business, he had surrogates like Pentangeli, but as we have said in many other threads Michael wanted to have his his cake and eat it too as far as legitimacy was concerned.