The study found that the legalization of dispensaries increased hotel revenue by 25,2% ($63,671 per month) and the impact continued to grow six years later.
Researchers in Production Operations and Management published a research paper that draws inferences based on Colorado’s data. Colorado experienced a “7.9% increase in bookings for room nights and 16.0% in rates per day,” but the impacts were different depending on factors.
The study notes that “rapid growth of marijuana businesses presents opportunities as well as challenges to the hotel industry.”
The recreational marijuana dispensaries may attract travelers and encourage them to explore places that they would not have otherwise visited. For instance, around 12% of US tourists have reported positive experiences with marijuana-related travel… On the other hand, the lingering social stigma surrounding marijuana could negatively affect businesses, including hotels, located near these dispensaries. A Colorado Office of Economic Development and International Trade report (OEDIT 2019,) found that 10% of US tourists view Colorado as less attractive because of the recreational use of marijuana.
Despite what appears to be a polarized opinion about travel to countries where marijuana is allowed, the study revealed that hotel performance improved after this policy shift.
When comparing Colorado hotels to New Mexico hotels, where cannabis use was prohibited during the period of study, the analysis team concluded that, on average, hotel revenues increased by 25,2% monthly after recreational marijuana shops were legalized, which is equivalent of a significant increase of $63,671 for each hotel.
However, the report points out that not all hotels benefit from these effects. The report notes that hotels in resort areas, those operating less than a year, and higher-classed ones, benefit more from retail dispensary legalization. Hotel locations are also crucial. Those in resorts and airports have the greatest benefit from legalizing retail dispensaries, followed by hotels located on interstate highways or in small-town areas.
The paper also notes that “chain hotels owned by corporations experience more favorable treatment than independently-owned chain hotels or franchised chains.”
Researchers—from the University of Central Florida, Virginia Tech and the University of North Carolina at Chapel Hill—also concluded that “the positive effect on hotel revenue strengthens over time, showing no signs of slowing down six years after the statewide recreational marijuana legalization.”
Hoteliers can benefit from the positive effects of marijuana on their revenue. However, it is important to note that the legalization process does not ensure financial success.
The study concludes that the results of the study are important for policymakers because they highlight the positive spillover effect on hotels and the benefits to the economy.
The study recommends that city planners strategically locate dispensaries near resorts, airports, cities, and urban areas where they can provide the most benefits for hospitality businesses. They could also look at tax incentives and support programs that would help independent, lower-class hotels to capitalize on the marijuana tourism opportunity.
Another study, conducted in 2020, found that Colorado hotel rooms rentals increased dramatically after it legalized marijuana. The study also found that Washington State saw an increase in tourism following legalization. However, the impact was less dramatic.
Researchers compared the hotel revenues in Colorado, Washington and other states who did not legalize marijuana between 2011 and 2015. They found that this coincided with an influx in tourists. It was more noticeable after retail sales began.
In contrast, last year the Governor of Illinois stated that visitors from neighboring states came to Illinois in order to purchase legal cannabis.
“People in Indiana, Iowa and Wisconsin drive to Illinois, buy weed in dispensaries, then return home.” They’re not allowed to cross back into their state, so they must be staying in Illinois, says Gov. J.B. Pritzker said this at the moment.
In a September report, Colorado legislators said the decline in cannabis tax revenues was due partly to the “falling of demand” as more states legalized marijuana, making the sales from cannabis tourist “less prominent.”
This report stated that “prices for marijuana dropped as demand from the pandemic waned and marijuana tourism decreased.” “Tax revenue from marijuana is falling across most states where recreational marijuana is legal due to declining demand after the pandemic, but states that legalized marijuana early—like Colorado, Washington, and Oregon—are seeing the biggest declines in sales.”
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