I do not know anything about the legal ramifications, nor will I suggest any legal advice, nor what I say could be construed as legal advice.
That being said, I have thought about similar things. I do not know at what point tannerite becomes a explosive (or if it actually legally ever becomes a explosive). I would "think" that it never is a legal explosive based on the fact that it would then be a felony to pop off some (i do not know either if a specific amount changes the classification).
Tannerites reaction is started by high pressure shock. I do not know if the firing of the grenade would detonate it or not (I would guess not) but the contact I would most certainly think would not detonate. I can think of multiple mechanical devices that may or may not work to detonate it, but I think that they would be more trouble then they are worth.
What I would think the best method would possibly be to go, is research what exactly constitutes a firework, and find out if you can classify a fused black powder shell as a firework. I do not know what the legalities of a remote discharged black powder shell would be. A magnesium strip fuse that is ignited off of the 37mm shell (with a wadding between the propellant and the charge). It would be more of a distance fuse then a contact fuse. But hey, you could add metals to make it a cool color and what!
Just thinking things through, (again, no legal advice here). I cant remember what your m37 was classified as, is it a dd or a shotgun (sbs?)? I do not know if this matters, as I "think" it more matters what you launch then how... thinking about can cannons.
Just had a thought... you need a dragons breath shot... please post a picture!!!