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An employee at Tweed Inc., a licensed grower, attends to medical marijuana plants last January in Smiths Falls, Ont. Established growers are expected to have an edge initially.Dave Chan/The Globe and Mail

Canada's new legal marijuana regime is expected to feature a mishmash of provincial rules and a heavily regulated production system that will initially favour existing producers of medical cannabis, sources say.

Former Liberal cabinet minister Anne McLellan, who leads a panel outlining a framework for the system, gave her report to the government on Wednesday, offering recommendations on how marijuana should be legally produced and sold and how it could be consumed and by whom.

The report from Ms. McLellan's task force, which included medical, academic and law-enforcement experts – still has to be translated from English into French before being made public in coming weeks.

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The Liberal government has promised to table legislation to legalize marijuana for recreational use in the spring of 2017, although it remains unclear when the drug will be taken off the prohibited list for the first time since 1923.

Sources said one of the guiding principles of the task force was that "all producers should be licensed" by Health Canada under the new regime, except for the potential legalization of small home-growing operations.

Canada has 36 producers licensed to grow and distribute marijuana for medical purposes, and the task force has explored the possibility of using them as the starting point for the production of marijuana for the multibillion-dollar recreational market, sources said.

Sources said Ms. McLellan and members of the task force toured licensed facilities in Canada and were impressed by the high level of security and quality control. The task force also travelled to Colorado and Washington in the United States, and came back with a clear sense that Canada must approach legalization in a much more organized and restrictive fashion, the sources said.

Cannabis Canada Association, which represents the majority of licensed producers of marijuana for medical purposes, is calling on the government to start off by expanding the current model to serve recreational users.

"We do expect that market will also want quality products that they don't have to worry about, so yes, we'd like to help in that way, to start with at least," said CCA executive director Colette Rivet.

At the same time, the federal government will face pressure to break the grasp of "corporate cannabis" over the recreational market.

"I think that really needs to be opened up," said Eric Nash, a B.C.-based consultant in the marijuana industry. "A diverse cannabis industry is essential for legalization to be a success."

While it will advocate a specific production model, the task force is expected to recognize that the provinces and territories will have the final word on the distribution model, akin to the different retail systems for alcohol and tobacco.

"One of the things that we have discovered in this is that because there are federal and provincial responsibilities with respect to the regulation of the production, distribution and consumption of cannabis, it will very much be an issue of consultation between us," Liberal MP Bill Blair, who is managing the legalization file, said last week.

Brendan Kennedy, the CEO of marijuana-business investment company Privateer Holdings and medical-marijuana producer Tilray, said he wants the government to allow firms to sell their product under their own brands, rather than as generic marijuana. He argued that is key to replacing the $7-billion black market for marijuana with a regulated supply from licensed producers.

In the past 90 days, Mr. Kennedy said, medical-marijuana companies in Canada have raised about $200-million in financing to expand production, he said, but right now, medical marijuana is an industry with total annual revenue of about $100-million.

With a report from Campbell Clark