Two definitions of the term "grade" from TFD are:
- A position in a scale of size, quality, or intensity: a poor grade of lumber.
- An accepted level or standard.
In this case, "military grade" means it's of the same quality generally demanded of military explosives. The term "military explosives" refers to explosives actually used by a military. If a military uses explosives that are very low-quality, they're still military explosives. In contrast, if a non-military organization makes high-quality explosives for mining, they're not military explosives.
Whether ISIS-made explosives are military or not depends only on if the speaker considers ISIS to be a military or not, not on their quality. However, in this case the reporter wanted to point out that ISIS was making high-quality explosives that are similar to the explosives of national armies. The term "grade" means that the speaker is talking about the quality of the explosives, instead of about who uses them.
(Similar terminology is used in the nuclear context: "weapons-grade uranium" refers to uranium that is pure enough to use in a nuclear bomb, even if it's not actually being used in a weapon. Again, "-grade" is about the quality of the uranium, as opposed to its actual use).