As the country prepares for the federal government's bill legalizing pot, Saskatchewan will have to determine how much it will tax the drug.

The federal government has said marijuana legalization is meant to take profits out of the hands of criminals, but if the price is set too high, the black market will continue to thrive, one policy analyst says. It has been left up to the provinces to set the price for pot.

Rosalie Wyonch, a policy analyst with C.D. Howe Institute, took a look at how the federal and provincial government could tax legalized pot. She found that marijuana should not be be taxed beyond the current tax rates.

Rosalie Wyonch is a policy analyst with C.D. Howe Institute who researched how much governments should tax legalized pot. (supplied) "Simply by charging the existing sales tax at the current rate, and not adding any specific taxation to marijuana, both the federal and provincial government could generate $675 million," Wyonch said on CBC Radio's Afternoon Edition.

This would result in about 90 per cent of the market being regulated, she added.

"If they try to tax it too heavily they are simply undermining their own efforts to regulate production and enforcing safety standards," said Wyonch.

It will drive more people to get their supply from the black market and hurt the provincial government's chances of generating revenue through taxation, like it does with alcohol and cigarettes, she said.

However, Saskatchewan will have more wiggle room to add tax than other parts of the country because illegal weed is currently priced higher than legal weed here.

"Once you adjust for quality, a gram of illegal weed in Saskatchewan and Manitoba comes out to about $11.75 and a gram of legal weed is $10.20," said Wyonch.

She said that the government has to be careful, though, before adding a tax to marijuana, because once the black market is faced with competition from registered legal suppliers, its sellers will lower prices.

But, Wyonch said, once the black market is snuffed out, registered legal suppliers will be able to create economies of scale that will allow for their production costs to drop. And governments will stand to generate even more revenue from higher taxation.