Place cereal in a large mixing bowl and set aside. Place 1 cup powdered sugar, and 8 candy canes in a food processor. Pulse several times to break up candy canes and then process until smooth. You'll have very tiny bits of candy cane still visible.
Place remaining 8 candy canes in a ziplock bag and use a heavy rolling pin, or meat mallet, to crush them into little bits. Set aside.
Place chocolate chips in a microwave safe bowl with peanut butter and butter. Heat in 30 second intervals, stirring in between, until melted and smooth. Stir in extract (or oil) and immediately pour over chex mix. Quickly pour in the crushed candy canes from the ziplock bag over the chocolate and then stir to coat the cereal. The chocolate mixture might be slightly thick, but keep stirring and it will coat everything.
Once the cereal mixture is coated with chocolate, dump in the powdered sugar mix and stir until everything is dusted in white.
Eat out of the bowl, or package up for sharing!