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With federal legislation to legalize recreational marijuana just days away from being introduced, industry watchers are urging Ottawa to limit taxes on cannabis or risk stimulating the black market.

“With the regulation of marijuana, the government has a choice to make: either legitimize the market or generate large revenues, not both,” Rosalie Wyonch, policy analyst at the C.D. Howe Institute wrote in an open letter to the government’s pot czar Bill Blair.

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If the government opts to apply federal and provincial sales tax alone, it could generate $675 million in annual revenue while maintaining control over 90 per cent of the market, Wyonch wrote in the report released Tuesday.

However, if it tries to inflate taxes to boost that revenue to $1 billion, about half of consumers would opt for cheaper illicit sources, the report said.



The government’s marijuana legalization legislation could be introduced as early as Thursday, reports suggest. However, the Trudeau government indicated as recently as two weeks ago that it was still grappling with the tax issue.