Cigarettes are one of five quest items for Victim 8. There are only two in total in the game. Victim #8 will request that the Protagonist find one as his dying wish. Giving Victim #8 the cigarette will add 2% to the final player score.
The first can be found in Line 4 after saving survivors from cannibals in a room next to the meat. The second can be found in the basement of the Water's Edge Hotel. If the player smokes a cigarette they will harm the Protagonists stamina capacity. It is not recommended.