Vancouver has become the first city in Canada to regulate illegal marijuana dispensaries, a move that has "deeply disappointed" the federal government but was declared a common-sense approach by the mayor.

"We're faced with a tough situation, a complicated situation," Gregor Robertson said Wednesday after councillors voted 8-3 to impose new regulations.

"We have this proliferation of dispensaries that must be dealt with," he said.

The city has blamed Ottawa's restrictive medical marijuana laws for the rise of pot dispensaries -- to 94 from fewer than 20 just three years ago.

Health Minister Rona Ambrose had sent strongly worded letters to the city and police warning against the plan. On Wednesday, she said she was disappointed with the decision to regulate an illegal industry.

"Marijuana is neither an approved drug nor medicine in Canada and Health Canada does not endorse its use," Ambrose said in a statement.

"Storefronts selling marijuana are illegal and under this Conservative government will remain illegal. We expect the police to enforce the law."

The new rules mean dispensaries must pay a $30,000 licensing fee, be located at least 300 metres away from schools, community centres and each other, and some shops will be banned from certain areas.

But the city also voted to create a two-tiered licensing system, allowing compassion clubs to pay a fee of just $1,000.

To qualify as a compassion club, a dispensary must be non-profit, serve members and provide other health services such as massage therapy or acupuncture, and be a member of the Canadian Association of Medical Cannabis Dispensaries.

Coun. Kerry Jang said the clubs provide other services such as nutritional and psychological counselling and help people to transition from marijuana to other medicine if possible.

"That's what we should be encouraging," he said. "Like any kind of drug, you want to get off it eventually. That's the approach we took."

Don Briere, owner of Vancouver's largest marijuana chain Weeds, praised the city for its "courage" in approving regulations, but called the two-tiered system "discrimination."

Briere said it's unfair that his businesses must pay $29,000 more when they also serve medical pot patients. He said he planned to talk to a lawyer and had heard other owners were doing the same.

"If there's a class-action lawsuit, I obviously have to join," he said. "It's already being talked about."

Jamie Shaw with Vancouver's oldest dispensary, B.C. Compassion Club Society, called the new regulations a "historic move."

"It's actually great that they're encouraging some dispensaries to be a little bit more patient focused and patient centred while still not actually outlawing more recreational-minded ones," she said.

Coun. Geoff Meggs told council that medical marijuana was not an issue that the city wanted to take up, but one it was forced to handle because of Ottawa's "backwards" policies.

"Wake up. You are completely out of touch with the realities on the ground," Meggs said in a message aimed at the federal government.

Council's decision came after four days of public hearings where many of the speakers complained about a proposed ban on edible products such as brownies and cookies.

The city held firm on a ban, arguing that the treats appeal to children, it is difficult to control their contents and patients can buy marijuana oil to make their own edibles.

Dispensaries now have 60 days to apply for a licence.

If several stores are located in a cluster, they must face a review that would tally demerit points based on factors including the number of complaints and police incidents. Stores that are not compassion clubs automatically receive 10 demerit points.

Many dispensaries will be forced to move, including those located in the Downtown Eastside and the Granville Street entertainment district.

Krystian Wetulani of Vancity Weed said his Granville Street store serves many low-income patients who can't afford to travel far for their medicine.

"You have a rapport with patients and they get comfortable with you, and now that's going to be taken away," he said.

Vancouver Police Const. Brian Montague said the new regulations will not change the force's approach to pot shops, which are only made a priority if there are public safety concerns.

The City of Victoria is also considering bylaws for dispensaries.