While the rally in cannabis stocks picks up momentum as legalization looms, another portfolio manager is warning investors looking to enter the sector to tread cautiously.

“Be very careful,” Alex Lane, portfolio manager at Dynamic Funds, told BNN Bloomberg Friday morning.

His comments come as the Horizons Marijuana Life Sciences Index ETF (HMMJ.TO), which consists of North American-listed companies with cannabis-related operations, announced it now has $1 billion in assets under management.

“This is a classic definition of a speculative mania,” Lane said. “It’s great to see that we can still capitalize these new businesses, but the vast majority of these companies don’t have any revenue, don’t have any discernible profits.”

Lane warns that a comedown in valuations is “inevitable” as the sector consolidates.

“We’re going to see a lot of these names not exist in the next five or 10 years,” he said, while acknowledging “there will be some winners, for sure.”

Lane also said there are still many unknowns pertaining to how the legal market will fare.

“We don’t know what the market price for the product is going to be and we don’t know if it’s going to be competitive against the illegal market. We don’t know the impact of taxes, we don’t know how well these distribution mechanisms of online or in-store are going to work.”