Combine butter, powdered sugar, egg yolk and vanilla. Add flour and salt, beating until well mixed.
Divide dough in half. Blend 1/4 cup crushed peppermint candy and red food coloring into one half; mix the ground almonds into the remaining white dough.
Using 1 teaspoon of the red dough, roll into a 4-inch strip. Repeat with the white dough. Place strips side by side; press lightly together and twist like a rope. Place on ungreased baking sheet. Curve top down to form handle of cane. (Note: roll dough strips and form canes one at a time to prevent dough from drying out and becoming difficult to handle).
Bake 9 minutes, until lightly browned. Combine remaining peppermint candy and sugar in small bowl. While still warm sprinkle cookies with peppermint candy/sugar mixture.