Didn't you just answer your own question? Prohibition just pushed alcohol onto the black market and led to a long, bloody drug war. The solution for nicotine -- and most recreational drugs if not all, in my opinion -- is to recognize and regulate it as an addictive substance, but not to criminalize its use and possession entirely.

One of the primary issues at stake in the tobacco wars has been the industry's consistent ability to persuade the FDA that their product is not addictive, even as they were researching ways to make it more addictive. The answer is that it is a drug and should be treated and regulated as one.