In the current latest snapshot of the game, 20w11a, a player appears to be able to place sugar cane underwater, the only required condition being that it is placed on grass, dirt, or sand with water adjacent to it. There doesn't appear to be a restriction for underwater, which likely is a bug.
Environment
Windows 7 Professional (Service Pack 1)
RAM won't show for some reason under Computer properties, but I'm sure that it's 8 GB.
Java Version 8 Update 221 (build 1.8.0_221-b11)
This is intentional. See MC-929