Does the Hotel Industry Benefit from Cannabis Legalization? Research Suggests So.

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The story of cannabis legalization is, in part, a real estate story, as cannabis business owners buy and rent storefront property, scope out cultivation spaces, and engage with zoning boards. Today, eleven states and Washington, D.C. have legalized adult use cannabis, and a number of efforts to legalize by ballot or by legislature are underway, from New Jersey and New York to Oklahoma. 

How does legalization affect the hotel industry? John O’Neill, a professor at Pennsylvania State University’s School of Hospitality Management, has published research seeking to better understand how hotels perform after legalization. O’Neill is also the director of the Hospitality Real Estate Strategy Group at Penn State, which focuses on teaching, outreach and research on the hospitality industry. The Group counts among its advisors executives from companies like Hilton and Marriott International.

O’Neill focused primarily on Denver, Colorado, the first jurisdiction in the US with legal adult use sales. He analyzed hotel-related data from STR (also known as Smith Travel Research) and the locations of cannabis shops in the area. Colorado voters legalized cannabis in 2012, and, as O’Neill puts it, “no area provides a longer period of time of study.”

The research concluded that hotels in the City of Denver, Colorado, saw a spike in revenue after legalization: roughly $130 million in new revenue for hotels, mostly concentrated in areas that attracted tourists, or “leisure travelers rather than commercial travelers.” Interestingly, it doesn’t appear the distance between cannabis shops and hotels mattered all that much. 

But, this revenue bump was “short-term,” O’Neill told Cannabis Wire, and it is important to recognize that the “positive effects were largely attributable to price increases, although it is notable that there was a significant increase in occupied hotel rooms during the year following legalization, as well.

Still, more people checked out hotel rooms in Denver in 2014, when cannabis sales went live, “than any of the other years studied,” the research noted, referencing a ~9% increase. 

While Colorado attracted plenty of cannabis tourists after sales began, it was only a matter of time before other states began to legalize, also attracting their own tourists. For example, in 2016, major tourist hotspots like California and Nevada legalized cannabis for adult use.

“One of the reasons that the effects were short term may be that additional areas have subsequently legalized recreational marijuana,” the research notes. 

The study had some limitations, because it only looked at one city, in one state, during a period of broader economic growth. Also, its scope was generally narrow, O’Neill told Cannabis Wire, noting that, “The effects discovered by this research project were all positive, but because this project focused on revenues, it’s not clear whether the positive effects were counterbalanced in any way by increased costs, and whether any costs may have been operational or societal.”

When asked why he decided to conduct this research now, O’Neill told Cannabis Wire: “Hotel industry executives had asked me questions about the effects of legalized recreational marijuana on the hotel business, and I couldn’t find any prior research on the topic.” 

O’Neill said that he’s heard from hoteliers that they’ve “seen revenue increases from recreational marijuana legalization, but some are concerned that marijuana tourism may result in increased housekeeping expenses, as well.”

A number of states, including a cluster in the northeast, are seriously considering legalization in 2020. O’Neill said he hopes that his research “may benefit states and municipalities considering legalizing recreational marijuana, as well as hoteliers charged with understanding and quantifying the effects of recreational marijuana legalization.” 

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