Lyric discussion by dot50 

Mama's in the pantry preparing the yeast Sister's in the kitchen preparing for the feast Papa's in the cellar a-mixing up the hops And Brother's at the window a-watchin' for the cops

This is from a song called "New Talking Blues" by Hershal Brown, recorded in 1927. It wouldn't surprise me if Dylan, who had a voracious apetite for all kinds of traditional music, heard this song one day (or one like it) and used that 3rd line as a jumping off place for Subterranean Homesick Blues. With this song, and several others during that period, Dylan was evidently experimenting with the "Talking Blues" genre, and for him, the song may very well have had no meaning beyond that. I think that very creative people like Dylan will have an itch about something and it will pour out in their work. But then, once it's on the page, so to speak, it's value to the artist is spent, and as Dylan claimed, it really did not have any other meaning for him. On the other hand, Dylan was really something of a "channeler" for the mass consciousness in those days (as someone suggested in Scorcese's documentary), and the 50's and early 60's were very much about trying keeping a low or "subterranean" profile where the government is concerned. ("think McCarthyism") SHB was released in 1965 and activist movements (outside of civil rights) did not really take off until the late 60's.

As to what the "medicine" was, I really don't think that Dylan was talking about LSD here. LSD required fairly sophisticated lab equipment that the average "johnny" would not have laying around in the basement. Dylan might have been talking about amphetamines (considering the "speedy" tempo of SHB, this might even be likely), but this would have nothing to do with "meth labs", which were unheard of in those days. Amphetamines were readily available in pill form throughout the 60's and early 70's, so the only "mixing up" required would be pulverizing the pills and mixing with water.

An error occured.