The hobbit's pipe-weed was tobacco and would have had the same effect in Middle Earth as it does in our own world.
Perhaps hobbits had fewer health problems than we do because they were not heavy smokers. A pipe-full smoked outside the front door on a pleasant morning and another by the fire-side in the evening isn't as dangerous as smoking forty cigarettes a day.
Remember that when Tolkien placed a pipe in Bilbo's hands in the nineteen-thirties, the dangers of tobacco were not fully understood.
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