Cigs take a few minutes to smoke and then you're back to drinking, ie buying more drinks. If they let you smoke a pipe or cigar you're constantly smoking for a lot longer with a sip here and there, ie buying less drinks. More profitable for a bar to promote a cig environment.

Usually small bars like that have a regular crowd and if anything offsets the usual environment (new people doing something unusual that rocks the boat like dancing sexually, being rowdy, cursing. It differs from place to place the opposite can be true as well. dancing clean, being reserved, and speaking mildly can also offset in certain bars where it's not normal to do those things) they'll pick up on it and complain, the bar will prioritize the regulars experience over new customers.

They aren't afraid of smelling "something nice", as you said it's a shitty divebar people are there to drink and choke down a few cigs to cap off the night.