Hotel revenues are reaching a new high in Colorado

A study by Florian Zach, associate professor in the Virginia Tech Howard Feiertag Department of Hospitality and Tourism Management, part of the Pamplin College of Business, has discovered that in Colorado, average monthly hotel revenue increased by 25% due to marijuana legalization. This occurred between 2014, when marijuana was legalized in Colorado, and 2019, the period analyzed in the study. The increase in revenue was attributed to higher room bookings and increased daily room rates.

“This occurred due to several factors, including hotel characteristics such as proximity to dispensaries, age, class, location type, and operating structure,” said Zach, an affiliated faculty member of the Global Change Center. “Greater revenue increases were also observed in hotels that were closer to dispensaries, newer, more upscale, situated in urban or high-demand areas, and corporately managed.”

The research, published in Production and Operations Management, also found that hotels were expanding their capacity and upgrading from a three- to a four-star property in response to rising revenue. This provides upgraded amenities and guest experiences at a higher price point.

The study analyzed data from nearly 1,300 hotels in Colorado and New Mexico between 2010-19, along with interviews with hotel managers from three Colorado cities. New Mexico was used as a control state due to marijuana not being legalized during the data window of 2010-19.

Zach added that “neither the hotels nor dispensaries actively pursue a strategy to be in close proximity. However, our findings suggest that the distance does matter.”

Hotels in resort, urban, and airport areas see the greatest benefits from dispensary legalization because of the high population density. The research suggests high-class, newer, and corporate-operated hotels should leverage their brand equity and resources to attract marijuana tourists. One hotel even added a page of dispensaries to the guest recommendation booklet. Hotels farther from these areas or with aging amenities may consider renovation and rebranding to attract marijuana-friendly travelers.

While the legalization of marijuana may bode well for hotel revenue, conversations with hotel managers revealed that not all hotels are excited about the change.

“It would be naive to think marijuana is the greatest thing available,” Zach said. “One hotel general manager noted real concerns, especially for hotels that cater to non-marijuana users, such as airline crews.”

As marijuana legalization continues across the country, this study serves as a novel approach to understanding its impact on hotels for not just guests, but also for the industry. It detailed the impacts on policymakers, city planners, investors, and entrepreneurs, highlighting the economic benefits.

Policymakers and city planners may consider legalization when crafting zoning laws, potentially placing dispensaries in high-demand areas like resorts, cities, and airports. The study shared that investors and developers can use this data to guide decisions, such as upgrading hotels in these high-demand areas. Additionally, the potential for partnerships between hotels and dispensaries could create curated and integrated marijuana guest experiences.

From renovations to partnerships, recreational marijuana legalization is reshaping how hotels attract and serve guests. The study highlights an emerging market with significant room for growth.