Torys on defence: re-arming with Canada’s first Defence Industrial Strategy

On February 17, 2026, Canada released its first Defence Industrial Strategy (the Strategy)—a comprehensive blueprint designed to both protect Canada’s security and boost economic growth. The Strategy will prioritize Canadian firms, streamline procurement, and foster investment in Canada’s defence industry. It signals a significant shift in Canada’s approach to capability development, procurement, and industrial participation.

This bulletin outlines the Strategy’s core elements and implications for Canada’s defence industrial base, investors, and other sector participants. In the coming weeks, the Torys Defence team will release additional analysis detailing the Strategy’s impact across multiple sectors, including procurement, critical minerals, infrastructure and life sciences, with additional considerations for investing and more.

What you need to know

• A “generational effort” driving half a trillion dollars of investment in Canada. Backed by $82 billion in new defence spending from Budget 2025, the Strategy targets a 50% boost in defence exports, 240% industry revenue growth, 125,000 new jobs, and over half a trillion dollars in defence-related activity by 2035.
• Five key pillars. The Strategy prioritizes rebuilding domestic capacity, modernizing procurement, strengthening innovation, securing supply chains, and reinforcing Arctic defence, signalling where future investment and procurement will concentrate.
• Strategic partnerships with defence firms. The Government will partner with select Canadian defence firms to secure domestic ownership and control over critical intellectual property. A framework for identifying and onboarding strategic partners will be published by this summer.
• Build-Partner-Buy framework. All future defence procurement will follow a “Build-Partner-Buy” framework: Canada will build domestically to strengthen sovereign capabilities and prioritize Canadian suppliers “as a matter of policy”, partner with trusted allies such as the EU, UK, and certain nations in the Indo‑Pacific where it cannot build alone, and buy from allies only when necessary and only with strong domestic benefit conditions.
• Ten sovereign capabilities. The Strategy identifies ten initial “sovereign capabilities”—including aerospace, ammunition, digital systems, sensors, space, and specialized manufacturing such as icebreakers—as priority areas for investment and procurement. Investors should assess how investment opportunities align with these capability areas.
• Next steps. Key follow‑up measures include legislation establishing the Defence Investment Agency (DIA) as a stand‑alone entity, reforms to the Industrial and Technological Benefits (ITB) Policy to ensure procurements benefit Canada’s defence industrial base, a strategy to expand production, stockpiling, and processing of defence-critical minerals, and a framework for identifying and onboarding Canadian strategic industry partners. Defence sector participants and investors should closely monitor these developments as Canada intensifies its focus on sovereign capability and its defence industrial base.

Why the Strategy matters

Canada’s first Defence Industrial Strategy provides a targeted blueprint for how government and industry will build, equip, and sustain Canada’s defence capabilities over the next decade. The Strategy serves a dual purpose: (1) to ensure both Canada’s sovereignty and security, and (2) to drive economic prosperity by growing the country’s domestic defence industry through a buy-and-build Canadian approach.

For the private sector, the Strategy provides a feature long missing in Canadian defence planning: a clear market‑demand signal, outlining the scale of federal investment, the specific capability areas that will be prioritized, and where firms should align capital, technology, and talent to compete. It also makes clear that Canada’s ambition extends beyond domestic procurement; the Strategy positions Canadian firms to compete globally through strengthened export promotion, deeper integration into allied supply chains, and a renewed focus on intellectual property ownership and control.

The forthcoming legislation establishing the DIA as a stand‑alone entity is expected to accelerate procurement and reduce bottlenecks—similar to Canada’s efforts to streamline major infrastructure approvals through the Building Canada Act. The strategic government-industry partnership framework also warrants attention, as designated strategic partners will likely gain preferred procurement access and joint-development opportunities. Together, these measures signal a decisive shift in how Canada intends to work with industry, creating new opportunities for firms that move early and position themselves within the Strategy’s core five pillars.

Key pillars of the Strategy

Pillar I: renewing Canada’s relationship with industry

The Strategy recognizes that Canada’s defence industry must serve as a full partner in rebuilding the Canadian Armed Forces. To strengthen this relationship, the Strategy commits to communicating the long‑term needs of the Canadian Armed Forces to industry, accelerating security clearance and facility accreditation processes, and structuring early, consistent government‑industry engagement to support more predictable investment decisions. Central to this effort is the new DIA, which will coordinate industry interactions across government and establish a permanent Defence Advisory Forum to facilitate regular engagement with Canada’s defence industrial base¹.

Pillar II: procuring strategically: the Build–Partner–Buy framework and ten sovereign capabilities

Procurement is a central focus of the Strategy, which introduces measures to accelerate capability delivery and strengthen domestic industrial participation. First, the Government will enter strategic partnerships with select Canadian defence firms to secure domestic ownership and control over critical intellectual property. A framework for identifying and onboarding strategic partners is expected “no later than summer 2026”².

Second, the Strategy expands the role of the DIA in implementing Canada’s new procurement approach. The Government intends to establish the DIA as a stand‑alone entity (separate from Public Services and Procurement Canada), with enabling legislation to be introduced in Spring 2026³. The passage of such legislation through to Royal Assent is difficult to predict, given the dynamics of the current minority Parliament⁴.

The DIA will apply the Strategy’s new “Build–Partner–Buy” framework to all future defence acquisitions, enabling faster, more coordinated procurement decisions and accelerating the delivery of military capabilities. According to the framework, Canada will:

(1) Build: The DIA will prioritize Canadian suppliers and domestically produced solutions to enhance strategic autonomy and reduce reliance on foreign supply chains. Under the Strategy, procurements in areas of home‑grown strength and designated sovereign capabilities will be directed to Canadian firms “as a matter of policy”⁵. The Strategy identifies these sovereign capabilities as priority investment areas where the Government aims to maximize strategic autonomy and mitigate supply chain vulnerabilities. The initial list of sovereign capabilities that the DIA will prioritize for build‑in‑Canada consists of aerospace, ammunition, digital systems, in-service support, personnel protection, sensors, space, specialized manufacturing, training and simulation, and uncrewed and autonomous systems.

The Strategy explains that sovereign capabilities must be critical to defending Canada, represent an existing or potential area of Canadian strength, and be in demand among allies to support collective defence and export opportunities. It also notes that these designations will evolve over time as threats, technologies, and industrial capacity change⁶. To advance this objective, the Government indicates it will adjust procurement authorities and legal frameworks as necessary, including using the national security exception under Canada’s international trade agreements to direct work to Canadian firms. Investors and Canadian defence companies should review the initial list of sovereign capabilities and assess how best to position their technologies and offerings within these priority areas.

(2) Partner: Where Canada cannot build a capability domestically, it will pursue partnerships with trusted allies and multinational firms to deliver required capabilities for the Canadian Armed Forces. The Strategy prioritizes diversifying Canada’s partnership base, with a focus towards the EU, UK, and certain nations in the Indo‑Pacific⁷. These partnerships will involve joint work, joint production, and the sharing of key technologies and intellectual property in ways that reinforce alliances and support Canadian sovereignty⁸.

(3) Buy: Where neither domestic production nor partnership is feasible, Canada will acquire equipment from allies. Such purchases will be subject to strong conditions requiring reinvestment into Canada’s defence industrial base and ensuring Canada retains sovereign control over the operation and sustainment of the acquired assets⁹.

To maximize benefits to Canada’s defence industrial base, the Government intends to modernize its ITB Policy. The ITB Policy leverages defence procurements to generate economic activity by requiring contractors to undertake business in Canada equal to the value of their contracts. It currently contributes an estimated $5 billion to GDP and supports more than 40,000 jobs annually¹⁰. The Government intends to advance a reform package to the ITB Policy in early 2026¹¹.

Pillar III: investing purposefully in innovation and R&D

The Strategy emphasizes the need to invest in the broader defence‑industry ecosystem, starting with R&D, innovation, support for small and medium‑sized businesses (SMBs), export development, and workforce growth. While a future bulletin will provide a deeper analysis of these measures, several key announcements include:

• Support for SMBs: Launch of the $4 billion Defence Platform at the Business Development Bank of Canada in early 2026 to provide venture capital and loans to SMBs advancing Canada’s defence capabilities (funding announced in Budget 2025). The Strategy also confirms implementation of the $357.7 million Regional Defence Investment Initiative in early 2026 to help SMBs scale and integrate into domestic and international supply chains¹².
• Advancing frontier technologies: Publication of the Bureau of Research, Engineering and Advanced Leadership in Innovation and Science (BOREALIS) roadmap by Q3 2026, outlining the establishment of this organization. BOREALIS will coordinate and accelerate innovation in frontier technologies, including artificial intelligence, quantum, and cybersecurity¹³.
• Prioritizing Canada IP ownership: Enhance supports to Canadian SMBs to manage and leverage IP, and prioritize Canadian IP ownership and protection and access in defence procurement⁴.
• Expanding export capacity: Establishment of a dedicated team to pursue high‑value international contracts and expand Canadian defence exports. The Strategy also aims to increase Canada’s global market presence by adding new Trade Commissioners in the UK and key EU markets¹⁵.
• Developing a skilled workforce: Implementation of a “Canadian Defence Skills Agenda” focused on strengthening the talent pipeline, addressing urgent sectoral needs, expanding the supply of skilled labour, and partnering with Indigenous communities and provinces to sustain Canada’s defence industry workforce needs¹⁶.

Pillar IV: securing supply chains for key inputs and goods

The Strategy introduces several measures to strengthen supply chain security domestically and with trusted allies, including the launch of the Canadian Defence Industry Resilience Program (CDIR). The CDIR is intended to support Canadian businesses in expanding production capacity for defence‑related goods and equipment. Its initial focus is on increasing domestic capacity for ammunition and explosives, with a priority on establishing Canadian production of nitrocellulose (an essential ammunition precursor), scheduled to begin in 2029¹⁷.

The Strategy also underscores the importance of securing Canadian supplies of key raw materials, such as steel, aluminum, and critical minerals. Canada notes both their centrality to defence supply chains and the country’s natural advantage in producing them. For example, Canada produces 10 of the 12 defence‑critical raw materials identified by NATO and holds the world’s largest deposits of high‑grade uranium. Given the growing importance of these materials, the Government intends to publish, by Q2 2026, a strategy to expand the production, processing, stockpiling, and procurement of defence‑critical minerals¹⁸. The Strategy also highlights supporting targeted investments in the life sciences sector, including mechanisms for stockpiling medical supplies and expanding biodefence and medical countermeasures capacity.

Furthermore, the Strategy emphasizes the need to safeguard Canada’s legal and policy frameworks against hostile state actors. It highlights the importance of effectively applying key statutes—including the Investment Canada Act, the Export and Import Permits Act, and the Bank Act—to protect sensitive technologies and ensure these frameworks remain “fit for purpose”¹⁹.

Pillar V: working with domestic partners, especially in the North and Arctic

The Strategy underscores the strategic importance of the Arctic, where the opening of new sea routes is increasing exposure to competition and interference from state and non‑state actors. To assert sovereignty and strengthen northern defence and surveillance capabilities, the Strategy emphasizes the need for climate‑resilient, dual-use infrastructure and sustained collaboration with Indigenous Peoples and northern communities. The Northern Operational Support Hubs (NOSH) program is highlighted as a key example of this approach, establishing a network of hubs and nodes to provide critical infrastructure and logistical support for military operations in the North, and delivering dual-use infrastructure including airports, medical capacity, and alternative power generation²⁰.

Next steps

Canada’s first Defence Industrial Strategy provides a catalyst to reinvigorate the country’s defence industrial base. Interested investors and defence-sector firms should monitor the follow‑up measures the government intends to implement, such as the forthcoming framework for strategic partners, legislation establishing the Defence Investment Agency, the critical‑minerals stockpiling strategy, and early investments under the CDIR program. As Canada sharpens its focus on sovereign capability and strategic autonomy, the Strategy is poised to redefine Canada’s defence ecosystem—reshaping procurement pathways, strengthening domestic capacity, and creating long‑term opportunities for firms aligned with Canada’s national security priorities.

In the coming weeks, the Torys Defence team will release additional analysis detailing the Strategy’s impact across multiple sectors, including procurement, critical minerals, infrastructure and life sciences, with additional considerations for investing and more.