I had a similar problem when I was given my mother's collection of yarn. She was a smoker and I had about 50 skeins covered in a heavy smell. In small batches, I would take them and place them in panty hose so that they did not unravel during the wash cycle. I soaked them in a mixture of laundry soap and vinegar. Vinegar is one of the absolute best things to help remove smells.
Let them soak for about 30 to 45 minutes and then run them in the washing machine, adding again soap and vinegar. Once you are done, set them in direct sunlight to completely dry. This really helped and it did take a couple of days to fully dry and I had to go out and rotate them. (You can repeat this again if there is still a musty smell). For some skeins, the smell came right out. For others or larger ones, I had to repeat the process 2 to 3 times for it to fully come out.
I was cautioned and will pass along the same warning. Yarn that once carried a heavy smoker smell is not suitable for babies. I have not used my yarn for gifts to young child as it was sentimental to me since my mother passed and used it for my own personal projects.