In a medium bowl, combine soy sauce and sugar. Add drained water chestnuts and stir to combine. Cover and transfer to the refrigerator to marinate for at least 2 hours. Meanwhile, soak wooden toothpicks in cold water (make sure the toothpicks soak for at least 15-30 minutes before baking).

Preheat oven to 300°F with the oven rack in the top third of the oven.

Slice the bacon strips into thirds crosswise. Wrap each water chestnuts in ⅓ strip of bacon and secure with a toothpick. Transfer to a baking sheet and repeat with remaining water chestnuts.

Bake in the preheated oven for 30 minutes, then switch the oven to broil for 5 minutes, or until the bacon is crispy.