Impact of Recreational Marijuana Legalization on Hotel Performance and Operations: A Bayesian Causal Inference Approach

Abstract

This article investigates the effects of legalizing recreational marijuana dispensaries on hotel performance and operations using Bayesian causal inference within the potential outcomes framework. Focusing on Colorado, the study finds that, on average, hotel revenue increases by 25.2% (or $63,671 monthly) due to dispensary legalization, with the effect continuing to grow even 6 years after legalization. The revenue boost arises from a 7.9% increase in room night bookings and a 16.0% rise in daily room rates. The impact, however, varies depending on hotel characteristics, such as the distance to dispensaries, age, class, location types, and operating structure, with greater effects seen in hotels that are closer to dispensaries, younger in age, more upscale, located in areas populated with potential recreational marijuana consumers (e.g., resort, urban, airport), and managed directly by corporate entities. Furthermore, hotels expand their room inventory by 3.9% in response to the legalization of retail dispensaries, partially mediating the revenue impact. These findings are relevant for professionals in marketing, operations management, hospitality, tourism, and public policy.