I'm not sure why everyone is saying Red Rocks. Phish played three shows there in 2009 but they haven't played there since.

The real answer is that every Labor Day weekend they play 3 to 4 shows at Dick's Sporting Goods Park outside Denver (except in 2020 when the shows were cancelled).

Colorado was one of the first states to legalize recreational weed, so I wonder if that factored in...

Like others have said, Red Rocks is a big part of it, but Colorado is also a bit of an island of civilization in the western part of the country. We're surrounded by Wyoming, Nebraska, Kansas, Oklahoma, New Mexico, and Utah - which probably aren't the states you think of first when you think of budding metropolises. So lots of events are held in Colorado that attract people from neighboring states.

Also, Denver International Airport is one of the busiest airports in the world since we're a huge connection hub to the rest of the country. So it's very easy to travel here.

Also Red Rocks is there and they love to play multiple nights in a row there.

Red Rocks is one of the best venues a band can play in, it's a real destination for musicians

The other reply is true but also: Phish fans are willing to travel. A 4+ hour trip to see them play is normal for a lot of them