so it seems trading factions cannot produce drugs, is it possible to assign the DC and join a production faction, for example an items faction and produce using their privs?

or is it just impossible to produce drugs atm?

I assume drug DCs work like any other DC. Specific to your question, items must be produced in item production factions.

Therefore, you must:
1. Assign the DCs to a factory
2. Make an item prod. faction the Manager of your factory
3. Have the Operator who begins production be a member of that item prod. faction

Assuming everything is assigned correctly, you should be able to go through the production process as per usual.

Hmm, I believe Smugglers used to be able to produce their own drugs. Either I am remembering it wrong, or that ability was not transferred over when it was merged.

If they had to be assigned to something, wouldn't it be a Lab? And wouldn't a medical company be the correct faction type to assign manager? I've never done it before, but that makes more sense to me than an item faction being able to.

Yeah, originally it was medical factions and labs that could produce it - but as Ellias says, I also seem to remember that smugglers were allowed to produce them (although not labs).

But use a medical faction to make'em in their labs, and you should be good.