Unequipping not working ?

This is the fixed script:

local Tool = script.Parent
local Humanoid = game.Players.LocalPlayer.Character.Humanoid

local drinking = false

function onActivated()
    if not drinking then
        drinking = true
        script.Parent.Smoker.Smoke.Enabled = true
        wait(5)
        script.Parent.Smoker.Smoke.Enabled = false
        drinking = false
    end
end


function onUnequipped()
	wait(0)
    if drinking then
        Humanoid:EquipTool(Tool)
	end
end

script.Parent.Unequipped:connect(onUnequipped)
script.Parent.Activated:connect(onActivated)

The problem is that you are trying to connect an event to onActivated, when your function is called Activated. When the game tries to call onActivated, it is a nil value, and therefore that error is thrown. Also note that you cannot set the parent of the tool immediately after Unequipped fires; I found that adding a wait(0) fixes this.