A man, wearing a marijuana-themed hat and sunglasses, is pictured during the annual 4/20 day, which promotes the use of marijuana, in Vancouver Thomson Reuters VANCOUVER (Reuters) - Vancouver city councillors on Wednesday voted in favor of new rules for licensing marijuana dispensaries, despite objections from the federal government, becoming the first Canada city to regulate retailers selling the drug.

The bylaw, part of an effort to slow the thriving but so-far unlicensed industry in Vancouver, comes as the number of shops selling everything from joints to marijuana-infused lollipops has jumped from about 10 five years ago to roughly 100.

Under the new rules, the city will charge dispensaries a C$30,000 ($24,197) annual licensing fee, restrict where shops can be located, and impose criminal record checks for staff.

Marijuana technically remains illegal in Canada, with the exception of medical marijuana, which is used to manage chronic pain and to treat conditions like arthritis.

Vancouver dispensaries say they sell marijuana for medical purposes, but they operate outside of the federally regulated system, which provides the drug to some 40,000 licensed users through a mail order service.

"Storefronts selling marijuana are illegal and, under this Conservative government, will remain illegal," said Canada's health minister Rona Ambrose in a House debate earlier this month. "We expect the police to enforce the law."

The Vancouver Police Department has said it will not crack down on dispensaries, so long as they do not sell to minors and are not selling other illicit drugs.

Vancouver Councillor Geoff Meggs, speaking in favor of the proposed legislation, called the federal government's position "backwards and destructive."

"Wake up, you are completely out of touch with the realities on the ground," he said.

Vancouver councillors voted 8-3 in favor of the new rules, which were amended after public hearings to create a two-tier licensing system, allowing so-called "Compassion Clubs" to pay a licensing fee of C$1,000. The clubs are non-profit societies that also offer subsidized health services to screened clients.

(Editing by Lisa Shumaker)