This is the popup opened as a subview from the overflow menu. That view has a fixed width on all platforms. To reproduce, move the browser action into the popup in the right pane of the customization palette and then open the panel via the two overflow arrow as seen in the screenshot above.
That’s due to how it is designed to work. It is essentially the successor of the customizable hamburger menu. So I guess you’d have to argue with UX about why the popup can’t be closed and re-open the extension’s popup.