I came across this issue myself Earlier while I was trying to solve my own issues with creating a BASE ACTOR. I was unable to pick up the Flashlight static mesh I just dropped.
What I think is happening here is that you are picking up the item by the scene root, and on drop Event - setting the mesh to simulate physics.
So it looks like you have dropped the item but really the root it still attached.
I may be wrong , but if you do this with a static mesh actor or skeletal mesh actor BP, and NOT the actor BP it will work fine because the mesh is the root.
I don’t know how to solve this just yet