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This morning I am recommending a bearish trade on Cronos Group, Inc. (NASDAQ:CRON), the Canada-based cannabis company.

Cannabis stocks are starting to recover from their December lows, and CRON seems to be outperforming the sector. While the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) and the Horizons Marijuana Life Sciences ETF (TSX:HMMJ) have only just started to recover their losses, CRON set its 52-week high yesterday.

I think the stock has gone too far too fast, and there is a chance of a pull back. A long put is a good way to be prepared, and since CRON is up, the options are relatively inexpensive.

Cannabis Stocks Have Rallied

If we look at the chart for MJ, we see the sector is encountering resistance just above the $20 level. This level acted as support back in September, and it’s possible the stock will get rejected and head down again.

Daily Chart of ETFMG Alternative Harvest ETF (MJ) — Chart Source: TradingView

HMMJ is also encountering some resistance just under $32. The stock started making lower highs after getting rejected at this level in November, and it suffered along with the rest of the market in December.

Daily Chart of Horizons Marijuana Life Sciences ETF (HMMJ) — Chart Source: TradingView

Both of these stocks gained about 30% during the first three weeks of the year, recovering some of the losses they have experienced since September. But this sector is still at risk of a pullback, and I think CRON is even more vulnerable.

Too Far Too Fast

CRON has risen over 80% since its December lows, greatly outperforming the rest of its sector. It saw sharp declines in both September and October, and I think it will fall again, even if it trends higher in the long term.

Daily Chart of Cronos Group, Inc. (CRON) — Chart Source: TradingView

CRON’s December low was just under $10. It could establish support at $14, which acted as resistance at the beginning of the month, but if it fails to do so, it may retest the $10 level as support. For that reason, I’ve selected $11 as a strike price for the long put I’m recommending.

Buy to open the CRON March 15th $11 put for a price of about $0.20.

Note: There are several March expirations available for CRON options. Be sure you are opening the monthly options that expire on Friday, March 15, 2019.

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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.