The council voted 5-2 with one abstention late Tuesday in favor of the plan. The measure will go before the council one more time for a final vote, but the outcome is not expected to change.
The move would make Oakland the first city in the nation to license wholesale pot cultivation.
The measure's supporters say it could generate millions of dollars for Oakland in taxes and sales, create hundreds of jobs and position Oakland to reap dividends if voters pass a November initiative to legalize recreational use of marijuana.
Opponents say it would drive small growers out of business.
Terryn Buxton is a small cultivator of medicinal marijuana. He sells his product to the Harborside Health Center in Oakland and he fears being pushed out by the large-scale growers.
"There are a lot of people out here who are trying to find a way to create their own small business and they are trying to do it in a legal way and they are going to have these large industries coming from out of town and put them out of business," says Buxton.
The City Council will decide who gets the permits to build four mega indoor hydroponic marijuana farms. Each permit would cost $211,000 a year. They would run like any other big business.
On Thursday the council will also vote to impose an additional tax on these growers.
"This would allow us to get a little jump in the industry for large scale, high tech, well-financed facilities and we'll keep them out pretty much of the neighborhoods and in the industrial area of the city," says City Councilmember Jean Quan.
Quan would like to see the small and medium size growers operating in an industrial area. The council will decide their fate in September.
Steve DeAngelo is the director of Harborside, one of the largest medical cannabis dispensaries.
"The government's role is not to choose the winners and losers in the marketplace. Let there be small, medium and large size producers and let the patients decide whose product is best for them," says DeAngelo.
He also argues that big operations will dilute the quality of marijuana.
"There would be a very big difference in the product. It would be the difference between a fine wine from a Napa vineyard and a bottle of Mad Dog 20/20," says DeAngelo.
Some council members say this could be a money maker for Oakland if voters in California vote to pass an initiative that would legalize marijuana throughout the state.
Richard Lee is behind the November ballot initiative to legalize marijuana in California.
"It will help by providing tax revenue for Oakland, we need that in light of laying off police officers, and it will also help by reducing the attraction for people to grow illegally and to do it in unsafe ways that causes fires," says Lee.
Small growers are not out of the market yet. Some of them could come together to try to win a permit.
By the way, the cannabis industry doesn't want people to use the words "marijuana" or "pot clubs" any more. Now, there is a list of new terminology they would prefer people to use.
The Associated Press contributed to this report