You are unable to group records by a List type field or you are unable to use the Group by field in reporting, using a List type field
List type fields must have 'can group' attribute to be used as 'grouped by' operator. OOB, List type fields do NOT have this attribute
System Administrators do not have access to add this Attribute by selecting it via Reference field, however you may manually add this into the Advanced View of the Dictionary Entry (Attributes field)
1. Navigate to the field in question, right-click and select 'Configure Dictionary'
2. Scroll to Related Links and click 'Advanced View'
3. In the 'Attributes' field, add a comma and: can_group=true (final value should look like ',can_group=true')