A folder that you've put on your Finder's Sidebar shouldn't say, "can't be found" just because it's in iCloud Drive. I have several folders that used to exist in my User's folder that I've moved to iCloud Drive, and they work fine.
I want to double check that you're talking about the Finder's Sidebar, and not Photos' sidebar or a Sidebar in another app-- is that right? Because if a folder that's on the Finder's Sidebar is trashed from the enclosing folder, it just disappears from the Sidebar. Even if the folder is on another drive that's unmounted, the folder isn't stuck there-- it just vanishes. It doesn't say, "can't be found."
If you don't see iCloud Drive in your Finder Sidebar, then go to Finder's Settings and check the box to show iCloud Drive. Then you can click there on the sidebar to see what's iCloud Drive.
Do you see your folders in your iCloud Drive folder? If so, you can just drag it from there to where you'd like it, just like any other file in any other folder.
See this:
Understanding iCloud Drive