Although the measure earlier appeared headed for defeat, by late afternoon on Wednesday the numbers showed a reversal of fortune with Initiative 301 set to pass with almost 50.6 percent of the vote.
The Denver Elections Division has not yet certified the results as they are still accepting military and overseas ballots (which are typically small).
Tuesday's referendum, which was the first USA public vote on magic mushrooms, asked voters if the personal use and possession of the drug should be the city's "lowest law enforcement priority".
Campaign organiserssaid their only goal in the mushroom measure was to keep people out of jail in Denver for using or possessing the drug to cope with depression, anxiety, post-traumatic stress and other conditions. "It provides a lot of lasting benefits, weeks and months after one experience". It is classified as Schedule 1 substance by the US Drug Enforcement Administration along with drugs like heroin, marijuana and LSD.
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The group responsible for the measure, Decriminalize Denver, followed the same tack taken by marijuana activists to decriminalize pot possession in 2005 in the city.
Marijuana is now legal for recreational use in 10 USA states, including California, while more than half of the 50 states allow its use for medical purposes. That move was followed by statewide legalization in 2012. In 2016, Denver became the first city in the U.S.to allow customers to use cannabis in private businesses, including bars. Users have described seeing vivid colors and geometric patterns, and experiencing powerful spiritual connections and emotions. Those same effects have appealed to recreational users dating back to the 1960s counterculture movement.
Last year, a similar measure to decriminalise psilocybin mushrooms in California failed to gain enough signatures for inclusion on the ballot.
Organizers collected more than 9,000 signatures to get decriminalization on the ballot. The city's election has largely focused on a six-way race for mayor and a heated effort to end Denver's "urban camping" ban that affects people without housing.
The city is set to establish a "policy review panel to assess and report on the effects of the ordinance" per the initiative's requirements. "No person deserves this kind of treatment for a substance this safe".