So it's only if they smoke at school that they become bad? Nicotine is more addictive than heroin, I don't think it's a matter of 'rather' be off smoking. Sure, in some cases but, saying that if one smokes at school, one then doesn't care for education is a generalisation, not fact. I'm not even saying every school should go and do this, but if it works then I think it's good.
I have worked in schools for quite some time now, and while I realise that it is a generalisation and there will always be exceptions, the kids who get caught smoking and get suspended for it are the same kids who are suspended for numerous other things too. The smoking doesn't make them bad, they just seem to be the same students whose difficult behaviour and lack of self control makes them poor students who in turn make schooling difficult for other students.
If we want to keep those completely addicted students at school then supply nicotine patches to get them through the day. In my opinion we should not be giving them areas to smoke during school hours. It may be legal to smoke at 16, but that means someone else has broken the law by getting them cigarettes. It is one of those stupid loopholes in the law that should be fixed.

I wasn't going to post in here but TBH, this post made me feel sick. Surely there are other ways to help your students, instead you are choosing the break the trust that students already lack for many teachers.
Should we break the trust of the students who come and tell us about smoking in the toilets by then ignoring it? Or maybe just have all the students in the school that we know about students breaking school rules, but we don't really think those rules are worth enforcing so we will let it slide? That won't do much for the respect or trust of teachers either.
You also say the students are the ones who will suffer healthwise, that is exactly why we should not be providing them with a venue to harm themselves... they are still minors and are under our protection!