The fact it was carrying ammo is irrelevant.
Because the Admiralty had ordered all British Merchant vessels to immediately report U-boat sightings and attempt to ram them if they did see any,
they were no long considered Merchant ships and were considered naval auxiliaries instead. This made them a legitimate target, however
unpallatable.
Lusitania was also fitted with gun mounts and was going to be turned into an Auxilliary cruiser anyway. She had been bought and paid for by the Uk
Government by loans to Cunard under the understanding that in times of war, she could be fitted to be a blockade runner.
However, the sinking and subsequent events was a propoganda coup for the British and allowed us to begin formenting anti-German feeling in the USA,
eventually bringing them into the War in 1917.
I actually find it quite interesting that in both world wars, the UK had to do an awful lot of media work, bribing and other underhand games to bring
the USA on side. You would be surprised what we got up too