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Minister of Finance Bill Morneau speaks with the media following meetings with his provincial counterparts in Ottawa on Monday.

Adrian Wyld/The Canadian Press

The federal government is preparing a backup plan that would see it regulate the distribution and taxation of legal marijuana in provinces that are not ready in time for Ottawa's July, 2018, deadline.

Federal Finance Minister Bill Morneau outlined the plan Monday following a two-day meeting with his provincial and territorial counterparts. Some provinces are expressing concern with the federal government's deadline for legalization, given that important details, such as how the products will be taxed, have yet to be worked out.

Speaking with reporters, Mr. Morneau said a backup plan will be in place that would see Ottawa regulate a legal cannabis market based on mail delivery in provinces that have not yet established a regime to regulate sales at the retail level.

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Read more: With legalization coming schools and health officials struggle with how to talk to teens

Read more: Researchers implore federal government to make it easier to study cannabis

"We accept that there's much more work to be done, but we've started down that path and we are going to work to get to a conclusion by July, 2018," he said. "We believe that it's entirely possible. And as a backstop, the federal government will be able to assure the provinces that we'll be able to – for instance, be the taxation regime – if they're not able to get there in time. We'll be able to be the backstop in terms of how we actually distribute marijuana if they're not able to get there on time. So we have an agenda. We have a timeline and we have a backup plan."

With one year to go before the federal Liberals plan to deliver on a campaign promise to legalize the recreational use of marijuana, many questions remain as to how the products will be taxed and controlled. Mr. Morneau said finance ministers reached agreement on general principles, such as keeping taxes low to squeeze out the black market. Officials will work on further details over the coming months, with the goal of having a more detailed plan in place by December, when finance ministers will meet again.

The federal deadline has clearly emerged as a point of contention with some provinces.

"It seems rushed," Manitoba Finance Minister Cameron Friesen told CBC News following the meeting.

Alberta Finance Minister Joe Ceci acknowledged that the timeline is an issue for some of his colleagues, however he said his province will be ready in time for the deadline. Alberta's concern, he said, is that it does not have a sales tax and will be seeking an arrangement to ensure the province receives its share of related tax revenue.

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"Alberta's working as quickly as we can to make sure we're prepared," Mr. Ceci said. "Without a provincial sales tax, we need to ensure that we receive adequate monies to address the cost of having cannabis available for distribution and sale in our province."

A federal task force report, released in December, provided an in-depth analysis of the questions related to taxing marijuana. Chaired by former justice minister and deputy prime minister Anne McLellan, the task force recommended that taxes be kept low – at least initially – and that most of the revenue should be primarily focused on the protection and promotion of public health.

"Taxes should be high enough to limit the growth of consumption, but low enough to compete effectively with the illicit market," the task force said.

Generally, the task force recommended that the taxation of tobacco should be used as a guide for taxing marijuana. One twist, however, was a recommendation that marijuana taxes should rise in line with potency. Citing current research, the report said today's marijuana contains about 12 per cent to 15 per cent THC, which is the main psychoactive component of marijuana. That's up from 3 per cent in the 1980s.

A report produced last November by the Parliamentary Budget Officer estimated retail sales tax revenue resulting from legalization will initially be modest, in the hundreds of millions of dollars rather than in the billions. Using existing sales taxes as a guide, the PBO estimated that about 60 per cent of sales tax revenue would go to provincial governments and the remaining 40 per cent would go to the federal government.

Mr. Morneau said Monday that it was too early to reach conclusions in terms of how tax revenue would be shared. He also said taxing cannabis based on its potency could be technically challenging and no decisions have been made on that issue either.

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