In fiscal year 2026-27, the Department of National Defence and the Canadian Armed Forces (DND/CAF) will allocate over $50 billion to protect Canadians, our sovereignty, and support economic growth. This ensures Canada is on track to hit our 2% NATO spending target. In February 2026, Prime Minister Mark Carney announced a Defense Industrial Strategy over the next ten years that includes $180 billion in defence procurement opportunities and $290 billion in defence-related capital investment opportunities. He also said Canada will raise the allocation of contracts to Canadian businesses to 70%. Key defense technology opportunities in the coming years include drones, AI, aerospace, and quantum computing.
Why Defence Tech Is Heating Up Now
Canada’s defence budget is projected to grow by $8.7 billion from 2026 to 2030, reflecting a 6% compound annual growth rate. That’s stable, government-backed growth with procurement timelines measured in years, not quarters. Globally, the momentum is even stronger. VC investment in defence tech hit over $7 billion in 2025—more than four times the 2022 level.
The real opportunity lies in dual-use technologies that serve both civilian and military markets. ISED Canada allocated $656.9 million over five years to develop dual-use tech in aerospace, cybersecurity, AI, and life sciences. According to a survey by the Council of Canadian Innovators and The Icebreaker, 428 businesses in Canada are already developing dual-use technologies.
Mapping the Dual-Use Landscape
The Canadian Defence Tech Market Map includes 250+ Canadian defence and dual-use entities across key domains:
Cybersecurity and Quantum: Ottawa’s Quantropi builds quantum-secure encryption platforms protecting military communications from future quantum threats. Their QiSpace platform delivers next-generation cryptographic agility without hardware dependencies.
Space and Surveillance: Canada is partnering with Australia on Over-the-Horizon Radar technology to strengthen NORAD. MDA Space, responsible for Canada’s first military satellite, continues pushing boundaries in geointelligence. Arctic surveillance alone creates opportunities that didn’t exist five years ago.
Drones and AI Analytics: From reconnaissance UAVs to autonomous maritime vehicles, Canadian companies are building platforms that modern warfare demands. H2 Analytics’ EASE platform delivers realistic training simulations for military organizations, while Tactiql automates sensor data conditioning for command systems, solving decades-old interoperability challenges.
Secure Communications: Companies like Metropolitan Technologies develop decentralized cybersecurity platforms that protect critical infrastructure in extreme environments where connectivity means mission success.
Navigating Export Controls
Defence tech operates under different rules. The Controlled Goods Program (CGP) regulates access to controlled goods and technologies, including ITAR-controlled articles. If you’re handling anything with military significance (blueprints, technical specs, software), you need CGP registration.
The advantage? The Canadian Exemption (ITAR §126.5) allows U.S. suppliers to export licence-free certain unclassified ITAR-controlled materials to Canadian recipients registered under the CGP. That’s a massive competitive edge, but it requires strict security measures and compliance infrastructure from day one. Applicants must demonstrate at least 50% Canadian content for government contracts.
Cracking Procurement and Allied Partnerships
The Innovation for Defence Excellence and Security (IDEaS) program provides up to $6.75M in phased development funding. The Test Drives program lets the Department of National Defence (DND) validate technologies in actual military contexts, the kind of real-world proof that opens doors across allied militaries.
Here’s what industry insiders know: several participants found their initial clients within the U.S. government and leveraged that experience to enter the Canadian market. Allied references matter. A U.S. or UK defence contract carries serious weight with Canadian procurement officers.
Defence tech is inherently international. NATO allies committed at The Hague Summit in June 2025 to raise defence spending to 5% of GDP by 2035, representing the most significant defence mobilization since the Cold War. Senior NATO officials describe the conflict in Ukraine as “a mix of World War I and World War III,” as the alliance prepares for sustained conventional warfare. NATO’s force model expanded from 25,000 rapid response troops to 500,000 troops deployable within 180 days, with Europe expected to spend $1.25 trillion on defence by 2035.
This mobilization is creating international selling opportunities that didn’t exist three years ago. Prime Minister Carney secured Canada’s participation in the EU’s SAFE initiative — a €244 billion loan facility giving Canadian defence companies access to European contracts. Canada signed multinational agreements with 12 NATO allies for joint procurement of defence-critical materials, and the government created a Defence Investment Agency to coordinate with the UK, Australia, France, and European allies.
The trade pivot extends beyond tech. With over 90% of Canadian steel previously exported to the U.S., Canada is now brokering deals to supply NATO allies as Europe ramps up defence production. Steel, critical minerals, and dual-use technologies all benefit from the same shift: allied nations need reliable supply chains, and Canada is positioning itself as the non-U.S. alternative.
Canada maintains strategic partnerships through NORAD, NATO, and the Five Eyes, each creating pathways for Canadian technology to reach allied militaries. Canada is also interested in AUKUS Pillar 2 projects focused on cyber, AI, quantum, and hypersonics. Canada signed partnerships with Germany and Norway for North Atlantic maritime security.
For founders: build once, sell to many. A technology validated by one Five Eyes nation becomes easier to sell to others.
The Founder Playbook
Start dual-use from day one. Commercial traction funds R&D. Government contracts provide validation. You need both.
Get CGP registered early. Don’t wait until you’ve won a contract. Delays kill deals.
Leverage accelerators. Programs like Area X.O, CDL Defence, and Vimy Forge help navigate the ecosystem. GCXpo 2025 brought together 1,500+ innovators and investors for Canada’s premier dual-use tech demo day.
Think of allied markets from the start. Most participants found their first clients outside Canada, primarily in Europe and the U.S. International validation creates domestic opportunity.
What's Next
The government is launching a Defence Industrial Strategy and Defence Investment Agency to accelerate procurement. The pieces are in place: funding, reform, allied partnerships, and a growing ecosystem. But as Matthew Lombardi of warned, “We need to open the door now to home-grown innovators building at startup speed before their technologies are snapped up by foreign buyers”.
Defence tech requires patience for procurement cycles, discipline for compliance, and comfort with high stakes. But for founders building technologies that serve both commercial and defence markets, Canada’s defence tech opportunity might be the most overlooked scale-up path available right now.
At TBDC, we work with founders navigating complex, high-potential sectors. Whether you’re exploring defence tech for the first time or accelerating growth in this space, we can help you map the landscape and build the strategy that gets you from prototype to procurement. Learn more about our programs.
