I seem to recall a guy trying this in the US in the early 90's. Didn't last too long.
I thought so too. I just came across a 1993 article about "Smoker's Express". They got around the laws by making passengers members of a private club.
In the U.S. this concept only works if you have enough fliers who meet all of the following: (a) are serious smokers (not the occasional social smoker), (b) find the one flight time convenient, (c) are traveling alone or exclusively with other smokers, (d) find the pricing competitive, and (e) need to get from city A to city B.
This quickly limits the number of potential customers.