So I've done only two days of research and about a week of thought process. It will be much longer before I'll have the time and resources available to me to go more in depth into this development.
My initial thought process was that in order to color the smoke coming through the hookah, would be to color the water. This led to a good amount of time spent going online and researching dyes, their properties, and hazards to the human body. All I was able to find was the process for dyeing clothes, but also the process of creating these dyes and the harmful chemicals used to get them to "stick" to the fibers. Synthetic fibers are very harmful to the body and there is a lot of regulation for the proper disposal of the by-products of the creation process. Then I looked into organic dyes. Creating these dyes is a cool process and requires a lot of time and effort, but some of the plants used for these are naturally toxic and poisonous. Not to mention, the small amount of chemicals just to get them to "stick" to fibers. So far, the possibility for using these in the water...is in vain.