Since the above is a tested proven way of restoring Notes from a TM Backup, and doesn't seem to be documented anywhere, and is not like restoring other types of data, I thought it worth giving the short version:
1. Turn off iCloud Notes in Settings > Name > iCloud.
2. Restore the folder ~/Library/Group Containers/group.com.apple.notes
3. Open Notes app
4. Copy all restored iCloud notes to On-My-Mac (On-my-Mac may need enabling in Notes > Settings)
5. Turn iCloud Notes back on.
6. Move the restored notes out of On-My-Mac back to iCloud.
If anyone sees this or another method documented anywhere please post.
Another way of backing up and restoring iCloud Notes is with a third party app like iMazing, which can extract Notes from backups separately.
iMazing backups are the same as and compatible with the iDevice backups made by Finder, but it is not possible to extract particular data types from a Finder backup without a third party app such as iMazing.