There is a certain amount of due process that is required if it is a public school. Private schools will work differently. It does sound very excessive, unless there are additional details not provided. Hire an attorney if they decide to proceed.
I agree it depends on whether your son attends a public or private school. If private, did you sign an agreement prior to your son's enrollment regarding behavior? If public and this occurred on the school grounds, your son could face suspension or expulsion. If this did not occur on school grounds you have a strong argument for no disciplinary action to be taken. Either way, the public school district must follow its written procedures prior to any action. Contact the school district to inquire. You may want to consult with and retain an attorney on your son's behalf.
You should consult a local education attorney on this matter since the police do not seem interested in pursuing the matter criminally. You mention he was caught smoking by the police. Although he was outside school was he still on school grounds?