Yes, all LTO drives of generation 4 and up support hardware encryption.
If this tape drive was in a robotic library, the first thing to check would be the encryption options within the library itself. Some libraries ship with application managed hardware encryption disabled by default.
But, since you stated that this was a stand-alone drive, my best guess would be that the tape drive driver is interfering. If the IBM driver is being used, I would suggest removing that IBM driver and just using the default Microsoft driver.