This is the first instinct where the meme really has nothing to do with the context of the episode. "The Smoking Peanut" is actually a pretty big commentary on the treatment of enclosed animals within ...
The moment happens when SpongeBob and Squidward are making fun of a new plaid kilt that Mr. Krabs has on, but now the meme has just essentially turned into the “Mocking SpongeBob” meme ...