MONTREAL—Stained by organized crime and demonized by multinational cigarette makers, aboriginal reserves in Ontario and Quebec known for their cheap smokes are finalizing rules to raise prices and drive the criminal elements out of the industry.

But the increased revenues from the First Nations tobacco sales could also go toward legal challenges of Ottawa’s new contraband tobacco law, which aboriginals see as a violation of their constitutional rights to produce and sell tobacco.

Bill C-10, which took effect in April, targets individuals caught producing, transporting or selling large quantities of raw tobacco leaves or manufactured cigarettes on which a government tax has not been paid.

First-time offenders face mandatory minimum sentences of 90 days, followed by 180 days for a second conviction and two-years-less-a-day for any additional convictions.

Police define contraband tobacco as products such as raw leaves smuggled into Canada, counterfeit cigarettes that arrive from overseas and tobacco produced for sale on First Nations territory that is sold tax-free to non-natives.

Intended to hamper a black market worth billions of dollars each year, natives fear the law will single them out for enforcement. They warn of job losses, economic decline and the criminalization of a people who have been growing and trading tobacco wherever and with whomever they please.

“This is our own product. We’d like to know where in history we gave up the right to conduct business and trade with that specific product,” said Chief Gina Deer, a member of the Mohawk Council of Kahnawake, south of Montreal.

Both Kahnawake and the Six Nations First Nation near Brantford, Ont., are expected to formally adopt their own tobacco laws as early as August in a bid to regulate cigarette production and sales, collect their own revenues from the smokes and stave off interference from non-native police and governments.

The Akwesasne Reserve near Cornwall, Ont., whose territory straddles Ontario, Quebec and New York state, received a grant from the Ontario government to draft its own laws. A spokesperson said the council is watching the debate in other jurisdictions before moving ahead with legislation.

The federal Department of Public Safety says there are 50 illegal cigarette manufacturers in Kahnawake and Six Nations, as well as 10 manufacturers on the U.S. side of the Akwesasne territory.

Police investigators claim the influence of organized crime means contraband tobacco will be spirited across the border in boats, trucks or cars that return to Canada loaded with guns or drugs.

A draft copy of the Kahnawake law proposes a nine-member elected commission to oversee the on-reserve tobacco industry with powers to certify, ban or fine companies as well as set minimum and maximum cigarette prices and ensure preferential hiring for natives.

Deer said the tobacco law also aims to squeeze out Hells Angels and Mafia figures active in the aboriginal tobacco industry, though she suggested organized crime has a smaller footprint than Ottawa and various police forces would have the public believe.

“We just celebrated the 25th anniversary of Oka. We’re not afraid to stand up and fight no matter who it is, whether it be the army or organized crime,” she said. “This is our territory and people have stood up for that and that’s part of what they’re saying through this law too: that if you can be proven that you are linked (to organized crime) . . . you will not be allowed to operate these businesses.”

The highlight of tobacco laws in Quebec, as it is in Ontario, is a community contribution fund that will collect fees from operating permits issued to companies, impose fines on rule-breakers and slap a sort of native tax on finished tobacco products imported or exported from the reserve.

Kris Green, a spokeswoman for the Haudenosaunee Trade Collective, which governs Six Nations, said in a written response to questions that the fund will pay for the nine-member commission’s operational costs as well as community projects.

But it could also fund legal fees in the event of a clash with the federal government.

“ ‘Legal’ could include all aspects of legal issues and could include a portion should the federal government choose to enforce Bill C-10 against the Haudenosaunee and lay charges,” Green said.

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A spokesperson for Public Safety Minister Steven Blaney did not immediately respond to a request for comment about what sort of stepped-up enforcement First Nations might expect or whether Ottawa intends to respect First Nations’ efforts to regulate their own industry.

“We’re not looking to the external governments for approval, permission or anything of the sort,” said Kahnawake’s Deer.

“We’re saying that through tobacco we have proved historically that it’s always been our product and we’ve always used that product. Somehow the government has created laws to criminalize people within our industry and we’re saying that this is not acceptable.”

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