OTTAWA — Federal and provincial governments should have the power to levy taxes on marijuana, with Ottawa responsible for taxing manufacturers and imports, and provinces levying taxes at the retail level, says a prominent think tank.[np_storybar title=”Marijuana could be Big Tobacco’s next pot of gold and pot industry keeps growing buds” link=”https://business.financialpost.com/investing/market-moves/marijuana-could-be-big-tobaccos-next-pot-of-gold-and-pot-industry-keeps-growing-buds”%5D Right now, the marijuana sector is messy, shadowy and highly fragmented, but as legalization takes hold in more jurisdictions, that will change. Read on [/np_storybar]In a newly released policy paper, the C.D. Howe Institute also recommends the government focus on achieving public-health goals and avoiding a black market in marijuana.The Liberals have promised to legalize, regulate and restrict access to marijuana to keep it out of the hands of children while denying criminals the financial profits.The current system of prohibition does not stop young people from using marijuana and too many Canadians end up with criminal records for possessing small amounts of pot, the Liberals say.The government plans to remove marijuana consumption and incidental possession from the Criminal Code, and create new laws to more severely punish those who provide the weed to minors or drive while under its influence. The paper recommends Ottawa consider pardoning people convicted of pot possession — and drop any outstanding charges — to free up much-needed resources for legalization of the drug, says the prominent think tank.It’s now taking time to sort out the details.Podcast: Supreme Pharmaceuticals CEO John Fowler on becoming Canada’s next medical marijuana producer (CNSX:SL)Pharmacists, pot producers in brewing dispute over distribution as Ottawa holds the final decisionWhat to do if your employee asks to use medicinal marijuana at workThe C.D. Howe paper, written for the institute by Anindya Sen, an economics professor at Ontario’s University of Waterloo, says the federal government should retain powers over health and safety regulations, and provinces should have the freedom to design their own distribution systems.The federal government should discourage black-market activity by defining the legal amount of pot someone can possess, as well as maintaining and building on penalties for illegal production and trafficking, the paper argues. It also suggests work will be needed to settle on the level of psychoactive chemical in marijuana that dangerously impairs driving skills.Pot legalization could initially result in an increase in consumption and a need for more police monitoring and enforcement, prompting more government spending, the paper notes.“This discussion suggests that dropping charges against individuals for illegal possession who have no other Criminal Code convictions or charges would save considerable government resources without other significant offsetting adverse spillovers,” it says.“Similarly, the federal government should consider pardoning individuals who have been convicted for illegal possession but have not been convicted or charged for any other Criminal Code offence.”A pardon, formally known as a record suspension, doesn’t erase a criminal record. But it can make it easier for someone to find work, travel and generally return to society. This could also spur economic benefits, the paper says.Trudeau has said that while there’s potential for “a bit of revenue” from a revamped pot regime, the federal government isn’t looking for a financial windfall.Any cash that flows to public coffers through marijuana taxation should go towards addiction treatment, mental health support and education programs — not general revenues, he said.However, collecting the tax money and how it is spent “are economically two different questions,” said Ben Dachis, associate director of research at the C.D. Howe Institute.