From the case data, the following observations are noteworthy:

From the Economic perspective of Government of Canada:

As per Fraser Institute, Canada, Economis Stephen T. Easton's study - Revenue up

to $2 billion is estimated to be collected as tax, if the Marijuana is legalized
.

From Social & administrative perspective of GoC:

It is likely no more haruful than currently legal drugs such as tobacco and alco
hol.
Busting such illegal channel of buyers & sellers of the drug is a huge challenge
for the Government of Canada.

Pros & Cons of Legalizing:

Pros:
1. Government of Canada can readily save on 100% of the expenses incurred in Cat
ching illegal buyers & sellers, prosecuting them at court, confining them in jai
l etc.
2. It opens a huge avenue for raising revenues for the Government of Canada. Con
sidering that the Government is keen to find new sources of revenue, this is a l
ucrative area.
3. Government can to a certain level control & monitor the quantity of Marijuana
produced, supplied & consumped in the country

Cons:
1. Buyers do not run any risk in dealing with Marijuana. Hence, their consumptio
n of the drug is bound to increasing, causing more health hazards & illness in t
he long run.
2. Sellers do not run any risk in dealing with Marijuana. Hence, they would prol
iferate the production & rise the supply significantly. This will in turn ledad
to excessive consumption of the drug leading to health hazards to the citizens o
f Canada
3. Government may not be able to completely control the quantity of Marijuana pr
oduced & sold both legally & illegally. Since government shall levly huge taxes
on producers of the drug & would be regulating the prices from time to time base
d on the supply limits the government has planned to exercise, sellers may again
resort to illegal channels to distribute the drug freely at better profit margi
ns

Pros & Cons of not Legalizing:

Pros:
1. The Demand & supply of the harmful drug would remain the same, effectively th
e consumption being the same
Cons:
1. The criminals or illegal sellers would become unduly rich in due course of ti
me
2. Government of Canada would lose out on huge revenues by means of tax, if lega
lized
3. Government would continue to incur cost for fighting war against the drug cir
culation

Options in hand:
1. Government can penalize the criminals a lot higher - Covering for the lost re
venue due to not legalizing Marijuana. This may cause the sellers to further inc
rease the price to nullify the loss by means of penalty, which in turn may reduc
e the consumption & demand of Marijuana.
2. Government of Canada needs to do a trade-off on the taxes it would levy, assu
ming it would legalize the drug. Too high taxes would encourage the sellers to r
esume black market sale & too low tax would not yield sufficient revenues. Howev
er the Government needs to use the taxes as a regulator to monitor & keep the su
pply of the drug within planned limits. It may force the illegal channel already
well networked and functioning as a team, to reduce the profit margin & continu
e to sell illegally. This time the risk is much lesser as Marijuana is legal and
hence sellers can afford to relax the profit margin. Hence for Govt of Canada t
o legalize it, must arrive at an optimum amount of tax, ensuring all selling & b
uying of marijuana shall happen only legally.

Conclusion:

If objective of GoC behind legalizing the drug is only for revenue generation,th
en legalizing the drug is not recommended. They can resort for a trade-off in th
e expected revenue by still not legalizing the drug. Government is not a mere pr
ofit making organization, but also bears a social responsibility for keeping the
welfare of its citizens. Considering the above pros & cons, it is wise that Gov
ernment of Canada multiplies the Penalty rate high enough to make up for the opp
ortunity cost, if legalized. Doing so, shall ensure higher revenues for the Gove
rnment besides gradually eliminating or keeping consumption of the drug at negli
gible levels.

If not legalized:
Demand & Supply graph will be a straight horizontal line for an indefinite perio
d with cost being 8.60$ only
If legalized:

The Demand & supply graph will be an upcurve - A smooth left to right upward cur
ve signifying steady increase in both demand & supply. Rate cannot be determined
for this case, as it depends on the amount of taxes the Government would levy o
n the drug.