Stir together the 1 cup of sugar, butter, milk, vanilla, peppermint extract and egg in large bowl. Stir in flour, baking powder and salt and mix with an electric mixer to form a dough. Put half the dough in another bowl. Stir the food color into one half of the dough until evenly colored. Wrap each half of the dough in plastic wrap and refrigerate for at least 4 hours.

Preheat the oven to 375ºF.

Stir together the peppermint candy and 2 tablespoons of sugar and set aside.

 
For each candy cane, shape 1 rounded teaspoon dough from each half into 4-inch ropes by rolling back and forth on a lightly floured surface. Lay the 2 ropes side by side and lightly press them together. Twist the 2 pieces of dough together so that the colors make a spiral. Put the cookies on an ungreased cookie sheet and bend the top of each cookie to form the handle of a candy cane.

 
Bake for 9 to 12 minutes or until set and the uncolored part of the cookies are lightly browned. Immediately sprinkle the candy mixture over the cookies while they are hot from the oven. Remove from cookie sheet to wire rack to cool completely.