RCMP officers received tips that weapons were in a room at the Harbourside Hotel on Terminal Avenue.
Police found an 18-inch grenade launcher and arrested a 29-year-old woman who was also in the room.
There was no ammunition with the weapon. No other weapons were found in the room.
RCMP Const. Gary O'Brien said the launcher could easily be attached to the barrel of a rifle and would be able to launch grenades a considerable distance.
He said a forensics team is examining the launcher and assessing whether it was stolen or if it was used recently.
"There's criminal activity at this room. As to what that was, we're not sure," O'Brien said.
"To have a grenade launcher could be for a monetary gain. It could also be involved in criminal activity," he said.
A 28-year-old man that police believe is linked to the room was located a short time later on Comox Road. He was arrested along with a 32-year-old woman.
O'Brien said the three are all known to police, and that charges could be laid Thursday morning.