Nanco Nancy Rhode Island Novelty makes prize-only plushes for arcades & fairs. Here's a fairly large size Knuckles plush that apparently never got made. It can be found at their site (for a while) but then is always marked "unavailable". This may just be a prototype they made & then never released.
He's got some errors too, like the eyes are clearly gray & not purple, as well as the completely missing shoe soles. Those aren't the only flaws though, as you can spot overly small, shrivelled fists & a kind of poor expression. Freebie / prize items don't always look the best, but items with errors still shouldn't make it. Will this ever be corrected & produced?