I am not seeing any red flags on your bacon smoking process.
Although unlikely since you are using damp sawdust, you might want to ensure the sawdust is just smoldering slowly, and NOT burning with an open flame.
Cold smoking or adding additional smoke to your grill
Walton’s has a marvelous little gadget called A-MAZE-N-TUBE Smoker. If you haven’t seen one in action or tried one yet, they’re very nice, about 1.5" in diameter and either 6" or 12" long. They will either let you cold smoke softer stuff like cheeses on your BBQ grill or add additional smoke to whatever you’re grilling. I absolutely love this thing. And it’s so easy to use, you just fill it with flavored wood pellets, light it and set it where you want the smoke, only hard part is sometimes getting it lit, I use a propane torch, that gets it going every time.
If you are just using a lighter though, a propane torch is much faster than a standard lighter.
For others who may not have seen these smoker tubes before, you can watch our video to see what they are and how they work: