In a small saucepan, heat 1/2 cup of the milk until just steaming.
Remove from heat and add chocolate/cacao.
Stir with a fork or wire whisk until chocolate is completely melted.
Stir constantly over very low heat. Continue until completely blended and smooth.
Using the fork or whisk, gradually incorporate the rest of the milk and the water.
Add the spices and vanilla powder or extract.
When the mixture is blended, heat over a medium burner until hot.