We found a solution
This club is very dangerous. It caused us to not only be unable to unequip it, but also unable to equip any other weapon as well as sometimes make us completely stuck in dialogues with NPCs, or even unable to perform any other actions. It just completely bugs out the game in general. Sometimes, the weapon would flicker in our weapon slots, and we had to kill and resurrect each other to fix it.
Solution: Spam the equip torch button at the bottom left of your action bars. until the flickering slows down, or until you lose the club. Then send it to camp via inventory, and
never touch it again. If you have a character stuck in dialogue, push him far away, and you can eventually get out. If all 4 chars are in dialogue, you probably need to reload a save or restart if you play single save/honor.
Make sure you NEVER touch this club again. Just leave it in the camp supplies forever. You cant get rid of it without bugging the game.