Answer: C

Solution:

We can count this with complementary counting. The total number of ways to distribute the candies with no restrictions is $$3^7 = 2187.$$

To find the number of invalid arrangements, we have to count the number of ways where either the red or blue bag is empty.

For the case where the red bag is empty, each candy has $2$ options for the bag that goes into. There are then $$2^7 = 128$$ arrangements for this case. Similarly, there are $128$ arrangements for the case where the blue bag is empty.

There is an overlap of one case where both bags are empty. The final answer is then $$2187 - (128 + 128 - 1) = 1932.$$

Thus, C is the correct answer.