Is recreational cannabis legalization sparking a rise in hotel revenues? According to a recent study carried out by professor of hospitality management, John O’Neill, approximately $130 million was reaped in new hotel revenue by the city of Denver, Colorado after legalization.

“The production, sale and consumption of recreational [cannabis] has been legalized in at least 10 states, and many others are considering legalization,” said the Penn State researcher, whose findings were published in the most recent issue of the Journal of Real Estate Literature. “My findings could be useful to government officials and business owners in states that are considering legalization.”

Data was pulled from a company that specializes in the tracking of supply-and-demand data; STR – previously known as “Smith Travel Research” – generates data for numerous industries but in particular, the global hotel industry. In addition to gleaning information from STR, O’Neill also gathered information pertaining to the launch date of Denver’s recreational cannabis dispensaries and their geo-coordinates. 

Legal cannabis in Colorado came before many other U.S. states

Why was Denver focused on for this study on cannabis’ influence on the hotel industry, you ask? According to O’Neill, since Colorado was one of the earliest states to legalize cannabis for recreational purposes, there would be more information to draw his conclusions from. It was back in 2014 that a recreational cannabis law was enacted in the state of Colorado; spurring market growth across the state’s many cities, including Denver.

Moreover, O’Neill attributed his choice of location to the diversity and size of the city — two factors that most certainly bulked-up the generalized sample used to highlight cannabis’ influence on the hotel industry.

“I found that recreational [cannabis] legalization positively affected hotel revenues in Denver, totaling approximately $130 million in new hotel revenues,” explained O’Neill, who claims that the effects were only noticeable for around one year. He believes that the short-lasting effects were down to price increases in Colorado’s legal cannabis market; revenue rates returned to normal after the initial spike.

“We found that Denver hotels were able to charge and receive higher prices for hotel rooms following recreational [cannabis] legalization, and also found increased visitation to the Denver area with growth in occupied hotel rooms of nine percent in 2014, higher than any other year we studied, resulting in positive economic impact,” he continued.

Touristic hotels benefit most from legal cannabis in Colorado

Aside from the increase in prices, another factor seemed to amplify cannabis’ influence on the hotel industry — tourists. O’Neill says that hotel revenue rates were significantly higher in the most touristic parts of Denver, many of which are home to a profusion of dispensaries and retail stores. Specifically, he says that the lower-priced hotels had more revenue than those with more expensive accommodation. 

“I found that although hotels generally located in the neighborhoods and areas of the city where dispensaries are located experienced the most positive effects. There was no evidence that distance to [cannabis] stores was a significant factor affecting hotel performance,” he said, adding that, “it could be that guests visit dispensaries only once or twice during any trip, and that proximity to other support amenities, such as restaurants, lounges and conventional retail establishments, as well as hotel attributes, such as brand and price, are more important considerations in their hotel selection.”

In conclusion, O’Neill claims that the legalization of recreational cannabis in Colorado acted as a catalyst for hotel revenue in Denver. However, he also says that the United States underwent rapid economic growth during the studied time period.

“Although I studied Denver during a period of economic growth, its growth after legalizing recreational [cannabis] was above and beyond what would have been otherwise expected without legal recreational [cannabis],” he said. “In addition, its growth was greater than comparable cities, such as Albuquerque, Austin and Salt Lake City.”