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Limelife Society marijuana dispensary is pictured after being raided by the Vancouver police on August 13 for alleged ties to organized crime.Ben Nelms/The Globe and Mail

The city of Vancouver has received nearly 200 applications from illegal medical marijuana dispensaries seeking business licences, setting off a process that is expected to dramatically reduce the number of such operations while making Vancouver the first jurisdiction in Canada to regulate storefront pot sales.

Citing the proliferation of illegal pot shops, city council approved new rules earlier this year that will award business licences in exchange for hefty fees, as well as place restrictions on where dispensaries can be located and what they can sell. There are currently more than 100 shops openly selling the drug in all corners of the city, even as pot sales remain illegal outside of the licensed federal medical-marijuana regime.

(For more on Vancouver's dispensaries, read The Globe's in-depth explainer: Vancouver's pot shops: Everything you need to know about marijuana dispensaries)

By last Friday's deadline, the city received 176 applications, though only a fraction of those are expected to actually survive the licensing process.

"It's a three-tier process and I don't think a lot of them will get through every step," said councillor Kerry Jang, who has overseen the marijuana file for the governing Vision Vancouver party.

Under the new rules, retail dispensaries must pay $30,000 for a business licence. Non-profit compassion clubs that also offer other medical services will only be charged $1,000. Of the applications received by last week's deadline, 69 are applying under the compassion club rules.

Successful applicants must be located at least 300 metres away from schools, community centres and other dispensaries. Applications will also be subjected to community consultations, and operations that have previously been the subject of complaints to the city or have been targeted by the police will likely be rejected.

"People have been focusing a lot on the distancing requirement, but a big part of the licence is the actual track record of the owners – that's more of a consideration," said Mr. Jang.

The city has not set a target for just how many dispensaries and compassion clubs will receive licences.

Mr. Jang said he expects only about 15 to be successful; other observers have predicted as many as 50 might remain open.

The city has promised to ensure dispensaries that are rejected during the licensing process, or any that simply did not apply in the first place, will be shut down. Enforcement will range from ticketing and fines to the use of court injunctions, the city says.

The approval process is expected to take at least six months.

Dana Larsen, a long-time marijuana advocate, said he submitted compassion club applications for the two dispensaries he operates, though both are located within 300 metres of a school or community centre. The city has suggested non-profit compassion clubs might be able to apply for an exemption in such cases.

"If not, then we would have a few months to find a new spot," said Mr. Larsen. "That would be very difficult when there are 200 other people also looking, so finding a new spot, I would say, is virtually impossible."

Pot shops have proliferated in recent years as the city and its police force have taken a hands-off approach, only stepping in when there are alleged sales to minors or ties to organized crime.

The federal Conservative government has been a vocal critic of Vancouver's new dispensary rules. Health Minister Rona Ambrose urged council to abandon the plan, though she has not said what, if anything, her government would do to intervene.

Ms. Ambrose, who is running for re-election in her Alberta riding of Sturgeon River-Parkland, issued a statement Friday that repeated her previous comments that the government expects the police to enforce the law. The statement ignored a question about what a re-elected Conservative government would do if Vancouver police continue to allow dispensaries to operate.

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