This unit uses water flow to generate a spark. Low flow through the unit could be an issue and I would suspect the low flow of gas as another possible issue. Page 3 of the manual states 3/4" gas line as a requirement. Page 11 states "The minimum diameter required for any appliance connector used is ¾ NPT."
One other note from page 19...
Confirm that there is an adequate flow rate. With
the temperature adjustment knob on the unit
positioned all the way clockwise, a 1/2 gallon per
minute (GPM) flow rate is required for heater
activation. Fully open a hot water faucet and fill a
quart container. If the container fills in 30 seconds or
less, the flow rate (1/2 GPM) is sufficient to activate
the water heater.
NOTE: When the dial is turned all the way
counterclockwise, a flow rate of 1.1 GPM is required
for heater activation.