I am **rabidly** anti-smoking, but I find their argument, as presented, absurd. To say that your office is a smoke-free workplace and since you are now working from home, your home **is** the office is outrageous. 

Offices have non-smoking policies in their buildings to avoid polluting the indoor air in the workplace, and I'm glad they do. Back in the 1980's I worked in an office that allowed smoking at your desk, and it was awful. The building had poor air quality to begin with, and the cigarette smoke made it much worse.

However, when you work from your own home, the air quality of your home is your call. If you choose to smoke the health consequences are yours to deal with. 

Had they said that smoking during video meetings is not allowed it would be a much more honest and legitimate argument. I am a manager, and would complain if any of my people smoked during a video conference because it is now considered unprofessional in the workplace, and projects a bad image. I would talk to the person and frame it that way, and ask the person to refrain from smoking during video meetings in the future. I would never presume to tell them that they could not smoke in their own house however.

I don't know if your employer has legal grounds for their position or not. I'd suggest talking to a lawyer before deciding to fight it.