The problem is there has been a minor corruption of you MacOS working memory.
A fix that works consistently is:
Open System Settings (under Apple Menu) and navigate to TouchID & Password.
Try to turn on the "Use Apple Watch to unlock applications and you Mac" and attempt to turn the toggle on, including responding with your admin ID. (It will fail with a nonsense error message)
Power off your Apple Watch and restart your Mac
When Mac finishes restart, sign into Mac (the "Use Apple Watch to unlock applications and you Mac" toggle may or may not be on), close the lid on your laptop or put the desktop to sleep.
Restart you Apple Watch and enter your sign in code. Wake up you Mac, even if the Mac doesn't unlock with the watch the "Use Apple Watch to unlock applications and you Mac" toggle should be on and it will subsequently unlock your Mac.
Your mileage may vary, the phase of the moon may matter, and magical incantations may be necessary ;-) Occasionally, it's taken me two tries for this fix to work, but it does work.