I don't let them smoke, but I let them sell weed as a fund raiser. KIDDING!!!
Even though many would say "avoid kids that drink, smoke, chew or hang with girls that do!" I'd have to say . . . you're reaching the right crowd. Remember when Jesus first invited Matthew to be his disciple?
Matthew 9:10-13 (NLT)
That night Matthew invited Jesus and his disciples to be his dinner guests, along with his fellow tax collectors and many other notorious sinners.  The Pharisees were indignant. "Why does your teacher eat with such scum?" they asked his disciples.  When he heard this, Jesus replied, "Healthy people don't need a doctor—sick people do."  Then he added, "Now go and learn the meaning of this Scripture: 'I want you to be merciful; I don't want your sacrifices.' For I have come to call sinners, not those who think they are already good enough."
So let me be clear that I agree with our savior who "hung out" with the "sick" of heart. Frankly, the only people that will be critical of that are "those who think they are already good enough."
BUT- that's not what you asked. You asked about how to control their use of tobacco. That is a tough one- I know- I've been there. If you allow it, you wonder if you're communicating that it's okay. Plus, you don't know if their parents approve. Yet, if you don't allow it, might you be stifling a chance to reach the lost. And for what? Smoking- something harmful, but not illegal. Tough choice.
First let me say that a church may have a different obligation than an outreach organization. As a leader of a church youth group we are responsible to shepherd our students and protect them. Communication with parents is key- and a no-smoking policy is probably a good idea. This isn't to say that we shouldn't be tolerant of outreach kids smoking on their own turf.
An outreach program might have looser standards. Let me be clear- never bending what's right and wrong- but being more tolerant of the "baggage" that "sinners" bring along with them.
What policy can you make? I'll tell you what mine was at my campus outreach: No smoking during the program or on the school grounds. Afterwards we all would go to fast food and they could smoke there. I make sure that the whole group went to fast food. Be careful taking just smokers. If smokers get an extra privilege each week (like going to fast food) then it will tell the non-smokers that they should smoke so they can get that attention.
Keep up the good work!