The Empire seems to have used it mainly for its properties as a truth serum, and therefore an aid to interrogation, but this hardly seems to fit in with the Republic's ethics. It's not an organization that goes into forced interrogation of any kind. So we're left with the conclusion that the Republic is prepared to open trade negotiations with Kessel because it sees no reason to not have a legal distribution network. Why not indeed. The attitude to glitterstim use seems to bear more in common with alcohol than anything else.
Excessive indulgence can cause problems, but it's only in excess that the trouble lies.
In Jedi Search, Han initially suspects that spice mine overlord Moruth Doole's blind eye is a result of hitting the glitterstim too hard, but in fact it turns out that the injury was inflicted by a henchman of Jabba's - Doole is clearly a long term, heavy user but the side effects have come from his involvement in crime, not his glitterstim indulgence itself. Planet of Twilight is perhaps the most liberal of all the Star Wars novels for establishing the position of drugs in the universe. It was a means to an end, but not an evil means in itself, and it clearly gave a depressed and lonely man a great deal of pleasure. His indulgence in recreational drugs does not affect his ability to run, and run successfully, a reliable and widespread smuggling operation. In short, it has no ill effects on his ability to function.