Measure 9 cups of Chex cereal and place it in a very large mixing bowl. Set it aside for later.

Over medium heat, combine 1 cup semi sweet chocolate chips, 1/2 cup smooth peanut butter, and 1/4 cup butter in a saucepan. Stir constantly until everything is fully melted and smooth.

Remove the melted mixture from heat and stir in 1 teaspoon vanilla extract. Let it sit for 2-3 minutes to slightly cool.

Pour the chocolate mixture over the Chex cereal in three stages, folding gently each time to ensure even coating without breaking the cereal pieces. Toss gently to coat all the cereal evenly.

In a large airtight plastic bag, combine 2 cups powdered sugar and 1 cup festive sanding sugar. Shake well to mix the sugars evenly.

Add the chocolate-coated cereal into the sugar mixture in batches. Toss the cereal inside the bag to cover all pieces thoroughly, then remove the coated cereal onto a wax paper lined rimmed baking sheet.

Spread the coated cereal in a single layer on the baking sheet and chill it in the refrigerator for one hour to set the coating firmly.

After chilling, remove from the refrigerator. The Puppy Chow can be kept at room temperature or chilled until serving.