Cronos Group (NASDAQ:CRON) has been on a tear, with Cronos stock nearly doubling before settling down to its current price. But then again, it was a great month for investors in marijuana.

The sector has absolutely blazed higher in August, and with good reason. Constellation Brands (NYSE:STZ) doubled down on its previous investment in Canopy Group (NYSE:CGC) setting off a wild rally across the sector.

Additionally, rumors are flying that Diageo (NYSE:DEO) and other big beer and liquor players are looking to make equity plays in the sector. That’d follow on the heels of a recent deal by Molson Coors (NYSE:TAP) to get its own entry into the cannabis market.

Not surprisingly, investors are racing into other marijuana stocks. If Canopy got a massive investor to fund it, why not buy the others as well? Wall Street traders are famous for these sorts of momentum trades and with good reason. You can make a lot of money on a big wave, such as we’ve seen in marijuana stocks this month.

It’s Not a Profit Until You Sell

That said, to make that big money, you have to actually realize your gains. In the case of Cronos, the time is ripe for locking in gains. Just two weeks ago, Cronos stock was trading around $6/share. Since then, driven by little more than rumors and momentum, Cronos has more than doubled, topping $12/share in recent trading.

Late last week, however, Cronos tumbled following a sharply negative report from Citron Research. Citron blasted Cronos, suggesting that it was a “stock promotion” and hit the company with a price target of just $3.50/share. The stock slumped as much as 30% on Thursday before bouncing back on Friday to end the week on a positive note.

And while Cronos stock hasn’t recovered fully back to its highs, it’s still a good time to sell. Almost everyone that bought Cronos Group stock prior to last week is still showing large gains on their position. But with marijuana stocks, volatility is the rule. Prices will rise and decline sharply and Cronos likely has another big dip coming in the near term.

The Citron Report on Cronos Stock

In the past, I’ve made it no secret that I respect Citron’s reports. While they don’t always hit the mark, the firm has more wins than losses. In particular, when they short sell small-cap companies with troubled pasts, shares tend to slump, often permanently. Citron has a good nose for shady behavior, and if you own a stock they pan, you must pay attention.

That said, I don’t think this was Citron’s best work. Some of the claims, such as suggesting securities fraud because the company didn’t disclose sufficient information, seem to be a stretch. And the $3.50 price target seems pretty speculative.

But still, Citron is worth listening to. Over just the past month, Citron called a big winner in saying to buy Tilray (NASDAQ:TLRY) just before it went on to double. And in the case of CV Sciences (OTCMKTS:CVSI), Citron called it a short and it subsequently dropped 50%. Like it or not, Citron can move pot stocks.

And they make some fair points on Cronos. In particular, that Cronos’ valuation now is more in line with marijuana companies that already have a beverage deal, such as Canopy with Constellation.

Cronos stock has doubled off that enthusiasm, but, Citron rightly notes, it is unlikely that Diageo or another global brewer would partner with Cronos, given its product recall record. Additionally, Citron makes a good point about the general opacity of Cronos’ distribution deals.

Buy The Rumor, Sell The News

Recently, the marijuana sector has heated up for two primary reasons. One is the Constellation deal with Canopy. The other, however, is that the recreational market kicks opens up in Canada in just six weeks. The marijuana companies are gearing up for that big day, and investor enthusiasm is at record levels.

That said, one of the oldest trading adages is to buy before a big event and then sell as soon as it happens. Buying marijuana stocks into the legalization is an easy trade to think of. Which means that many market participants are doing it. When the crowd is all doing one thing, it sets the stage for a massive reversal.

Think about it: what happens next for the marijuana companies after legalization? It will take them several quarters to really ramp up revenues. But traders are impatient. Between legalization in October and quarterly results in early 2019, there will be much less to give the sector a buzz.

We have a flurry of press releases, TV reports, and so on heading into legalization. But once it actually happens, media and investor interest is likely to fade pretty quickly.

Cronos Stock Has Too Much Hype Baked In

It’s tempting to hold onto a stock after a big drop. For people with large paper gains, it’s easy to get attached to a recent high price, such as $12 for Cronos. But taking a wider view, it’s worth considering that $10 is still a great price for Cronos stock. It was at $6 just recently.

And while Citron’s report wasn’t their best research ever, they make some valid points. Cronos is an early-stage company with unclear levels of distribution and a minimal R&D budget.

Marijuana will be a huge business. But with dozens of companies running to grab the early lead after legalization, there’s no guarantee that Cronos will be able to keep up, let alone justify its $1.6 billion market cap.

Remember, Cronos produced just $7 million in revenues over the past year. It needs tremendous revenue growth, think triple digits for at least the next few years, to even begin to grow into that sort of market cap. Even if you love the story, this is a good time to take profits and buy back in cheaper on the inevitable next correction.

At the time of this writing, Ian Bezek owned DEO and TAP shares.