Everything we "know" about drug sniffing dogs is apparently poppycock.
The Mind of a Police Dog - Reason Magazine
TL;DR version: The dogs are more interested in pleasing their handlers than finding drugs, so they tend to cue on the handler's body language. If the handler thinks there might be drugs, the dog is likely to ignore its own nose and signal anyway. Researchers have done some pretty solid experiments to back this up.
The Mind of a Police Dog - Reason Magazine
TL;DR version: The dogs are more interested in pleasing their handlers than finding drugs, so they tend to cue on the handler's body language. If the handler thinks there might be drugs, the dog is likely to ignore its own nose and signal anyway. Researchers have done some pretty solid experiments to back this up.