In the Office 365 SharePoint settings the option to "Allow only users in specific security groups to share externally" was enabled
When this setting is enabled Microsoft does not send the API response that CASB needs to properly handle sharing public links
The only way to resolve this is to remove the check box from the "Allow only users in specific security groups to share externally" option
This can be done by doing the following:
Microsoft has a Design Change Request (1483271) in their backlog. If this issue is occurring a request can be made to Microsoft to prioritize this issue in hopes of getting it fixed more quickly