I appreciate all the comments, just to clarify a few points...
1) Absolutely no brake dust at all, no sign of wear on the shoes or drum, and generally pristine look of all springs, adjusters and all parts inside the drum. However I forgot to look closely at the magnet so not certain of its condition. The other 3 hubs had was I thought was "normal" wear and dust levels inside the hub.
2) I do not believe the issue is intermittent as a perfectly clean hub interior and no wear seems to suggest the pads have never made contact since it rolled off the assembly line.
3) I did both variations of the test, pulling the breakaway cord and then testing with a compass as well as jacking it up and trying to turn the hub. The magnet clearly was magnetized and I also could not turn the hub. This was after I adjusted by four notches, so I assume all is good now. I just cannot get past the idea that 4 notches was all it took to go from no contact to full power...