This is such an absolutely awesome idea. Yes yes yes. Fistfights should start from smokers lighting up in meeting areas around dwarves who dislike the smell of smoke.
Thumbs down on the idea of illegal drugs though, that would be totally anachronistic. The earliest mention I've heard of illegal drugs is opium being outlawed in 18th centuring Qing China during the opium wars... at the same time opium and laudanum were entirely legal in Britain, which is part of why the British just thought the Chinese were being whiny legalist anti-free-trade authoritarians.
In the West drugs don't get outlawed until the 20th century (except maybe some pre-Prohibition "dry towns" in the U.S.)... after all the usual pseudo-conservative agitiation about "jazz weed" that only the degenerate lesser races of Negros and Mexicans smoked. (But as far as making political statements... unrestricted and enthusiastic consumption of and addiction to booze, anyone? The only reason that doesn't seem like a political statement, much less a drug addiction, is that it's not 1920. Once industrial-level corporate interests developed for alcohol and tobacco developed they became unimpeachably acceptable social drugs.)
Love the idea of intoxicant effects for certain smokeables, though... greater focus and stamina from coca leaves (only grows in tropical biomes) or tobacco... a really great one would be opium addiction. Dwarves become lethargic with increased risk of melancholy from opium, of course. How about merchants bringing opium and addicted dwarves violating "broker trade only" and giving away all of their personal possessions, possibly stealing from others, to get their next fix?