Place popcorn in a large greased bowl or roasting pan; set aside. In a small bowl, combine the water, baking soda and vanilla; set aside.
In a heavy saucepan, combine corn syrup and butter; heat over medium heat until butter is melted. Add sugar; cook and stir until sugar is dissolved and mixture comes to a boil. Cook and stir until a candy thermometer reaches 230° (thread stage), about 2 minutes.
Remove from heat. Stir in vanilla mixture (mixture will foam) until blended. Immediately pour over popcorn, stirring to coat evenly. Cool for about 5 minutes, stirring several times.
When cool enough to handle, firmly shape with buttered hands into 2-in. balls. Insert straight end of candy cane in the center of each ball. Yield: 2 dozen.