I read recently that someone had similar problems and started putting up signs stating that the property next to their house was a suspected drug house. According to the article, activity virtually stopped soon after and the neighbors moved on to "greener" pastures.
Don't know anything about any sort of liability / slander but according to what I read, it was extremely effective and non-violent.
Personally, the violence approach appeals more to me, but the non-violent approach is always more socially acceptable...
If I can find the article again, I'll post a link.