If it's soft it's something, probably but not necessarily sponge, growing on it. As your candy cane grows it will leave bare skeleton behind that will have endoliths and algae grow in and on turning it different colors.
Thank you TimFish for your advice on this. My wave maker is now making this strange blob wobble so I’m assuming that it has now turned soft? It also looks as if some maybe in the process of breaking away from the coral.