Unless there is a brand new issue, custom SMTP works (and no one is reporting an issue). So likely in your setup or your mailgun account setup. You would need to provide more info for any user here to help you (if they can or have ideas).
https://github.com/orgs/supabase/discussions/7444
I see several issues/solutions googling
mailgun supabase smtp
If you are paid plan you can also ask for support assistance.