Drilling chips is a way of canceling them, but not always just to make key chains for the hotel's gift shops. Sometimes they were just given away to management/staff/special players too. This was also done to insure that an obsolete, but not destroyed, chip could never be cashed. The best cancelled chips are drilled with a small hole in an inconspicuous place that does not mar the center insert or hot-stamp printing. FYI, at the other extreme, the worst drilled chips I've seen are from the Sierra Tahoe -- a big 3/8 inch bit right through the center of the chip!
Another type of cancellation to mention is OVER STAMPING. Paul-son uses a gold-foil sunburst pattern. (For example, there's a riverboat in Indiana whose name changed before opening. The set of chips made with the wrong name were sunburst-cancelled then sold at Paul-son's retail store as souvenirs.)
There's also a ring pattern like the 25c Oliver's Castaways chip, and various other overstamps like the "ZAB" cancelled $1 Castaways; the Tahoe Plaza $5 chips that are overstamped with a $1 denomination (FYI: note the difference in values between a non-overstamped vs. overstamped verities of these 2 chips.)
Another type of cancellation is "erased" information. Example: some of the Mapes-Money Tree (pg.126-TCR) "Nonnegotiable" hot-stamped chips had the center of the hot stamp drilled off (but not all the way through- just the surface). They reused these chips as 10c chips in their low-limit crap game, to save some money instead of reordering chips!One final type of alteration (not really a cancellation) is the stick-on patches like the $1 and $5 chips at the Valley Inn in Mesquite. (A few of the Puerto Rican casinos "remanufactured" and altered some chips used there, but that's another story I won't bore you with.)
used a rectangular type of notching. Same effect, just that it's a square bit,
instead of a round bit doing the notching.
Casino Chip manufacturer's samples are most often cancelled by 3-4 notches - just like this Sands chip. However, older ones have been known to be cancelled by drilling too, on occasion. The common sense way to determine is that cancelled UNCIRCULATED chips are nearly always samples, whereas cancelled chips which show table wear were cancelled after play. (Sort of obvious, but still worth mentioning.)