Dusty Rainbow Candy is fairly easy to find in Lost Ark. Once you're in East Luterra, you can find this as soon as you're free to roam.
Where is the Dusty Rainbow Candy?
Go to the Luterra Castle area and then to Luterra Palace to find Dusty Rainbow Candy. Instead of going inside, take the northeast route to the Arena and stop when you see the squires playing. Head north toward the Jousting Area until you see some benches.
There is a brown cloth bag on the ground next to the benches in the shade. You'll find a Dirty Rainbow Candy if you Investigate the bag on the floor.
You can find the location on the map below.
This item is described as expensive, but you can't trade it. You can add it to your Adventurer's Tome by right-clicking it in your inventory.
According to your character, they ate a piece of dirty candy from the ground that a kid dropped. The taste "exploded" in your character's mouth, and they won't return it to the kid.