You can “be arrested” for nearly anything at all that the police (or the prosecutor) think that they can make a case for. In fact, sometimes arrests are made in the expectation that the arrested person can help build the case that the prosecutor really wants to make … against another person. And having you facing a likely trial – and its attendant embarrassment, aggravation and inconvenience – not to mention the expense, if you have the means to defend yourself! – could make you more compliant in that endeavor.
I’m not saying that’s entirely ethical on the part of a prosecutor, but on the other hand, it’s not the best ethical practice to be knowingly enabling criminal activity in the house you live in, either, is it? That’s just reality.
You can reduce your legal risk by informing on the criminal activity. That makes you a witness, rather than an accomplice. (I’m not saying that’s entirely ethical, either, especially if you feel like drug laws are unethical to begin with.) Obviously, aside from how that makes you feel about yourself – because who wants to inform the police on one’s roommate, after all? – but it also exposes you to the very real potential of criminal reprisal from the roommate. That’s not a good place to be, either.
So it might be best to simply have a conversation with the other party, telling them that you know what they’re doing, because it’s in the open, and you’re concerned about the legal bind you’re in because of their criminal activity in the shared house. I would suggest telling them that you have not informed on them and have no intention of doing so, but the quid pro quo for your silence should be that they must agree to refrain from carrying on the criminal activity in the house. That is, no storage of the drugs on the premises, no sales or use of the drugs in the house, either. Assuming they’re making enough from the endeavor to make it worthwhile to continue despite the legal risk, then they should also find a place to do it that doesn’t involve you. And if it costs too much for them to make some alternate arrangements, then maybe you could talk them out of doing it altogether. After all, why break the law and run those kinds of risks for nickels and dimes?
What they do and where (else) they do it is no concern of yours, but you can’t allow the business to be carried on openly – that is, with your knowledge – in the house. Now, if they agree to your demands and then conduct the business surreptitiously (and still in the house), but you don’t know about it (and I mean really don’t know about it, not “pretend not to know”), then your hands are clean.
But you can still be arrested, even so.