This is kind of embarrassing but apparently I failed to read the documentation properly. The issue was that rancher is for testing/development purposes only in docker container mode. Once I installed a local k3s cluster and added rancher on top of that, I was able to install longhorn easily as specified in the docs.

1. Install k3s
   • https://docs.k3s.io/quick-start#install-script
2. Install rancher
   • https://ranchermanager.docs.rancher.com/getting-started/installation-and-upgrade/install-upgrade-on-a-kubernetes-cluster
3. Install longhorn (make sure you have met the pre-requisites)
   • https://longhorn.io/docs/1.8.0/deploy/install/install-with-rancher/

Here's the note on docker installation:

• https://ranchermanager.docs.rancher.com/getting-started/installation-and-upgrade/other-installation-methods
  • The Docker installation is for development and testing environments only.