Is it possible that psychotic people tend to self medicate more with it?

Yes, there's complex two way links. But we're pretty sure that there's a causal action too.

Having said that, alcohol misuse causes pretty severe psychosis too.

Here's a nice article: http://journals.sagepub.com/doi/full/10.1177/000486741559801...

There are more recent articles describing the mechanism that causes people with psychosis to smoke much more tobacco than the general population.