Mundungus is an obsolete term to refer to garbage or other worthless tripe. It comes from the Spanish mondongo, meaning, in the most literal and edible sense, tripe or black pudding. While mondongo does not have a definite negative overtone, by 1595 the English word tripe had become an insult, and so when mundungus first appeared in written English in 1637, it is no surprise that it was also used as an insult.
It was not much later, in 1641, that mundungus started to be used to refer to cheap, bad-smelling tobacco. However, over time mundungus simply became slang for tobacco, with perhaps a light or self-deprecating tone, with no particular censure implied by its use.
These days, perhaps unfortunately, Mundungus appears most often as a reference to Mundungus "Dung" Fletcher, a morally ambiguous character from Harry Potter.