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To keep the market out of the hands of the mob, the government should also reject “sin taxes” on marijuana. Those high taxes slapped on alcohol and cigarettes already encourage a black market in booze and smokes worth billions of dollars a year.

Instead, pot sales should only initially be subjected to the Harmonized Sales Tax (HST) at a total combined rate of 12 per cent to 13 per cent (with the federal Goods and Services Tax rate of five per cent and an average provincial sales tax rate between seven and eight per cent). The federal government should top up its five per cent Goods and Services Tax by an additional seven per cent to share revenues with provinces that don’t have a provincial sales tax (Alberta, for example) or have a separate one that is not harmonized with the HST (like British Columbia).

But even this low-tax strategy will fail unless the new regulatory regime allows for the development of a vibrant and innovative market. Here’s the main problem: Canada’s licensed medical marijuana companies — Big Pot — currently produce less than five per cent of the marijuana consumed by Canadians. The rest is provided by the black market.

Legal producers face high costs

The current licensing system was designed by Health Canada. It’s meant primarily to promote a product that is safe for consumption, encourages high costs due to the need for independent lab testing, quality control measures, mandatory usage of green energy sources and so on. Many of the Big Pot producers are now the largest legal marijuana companies in the world. They devote significant resources to comply with stringent regulations to produce lab-quality medical marijuana.