Return the security deposit portion with an itemized statement in accordance with local laws.

As you have not received the rental assistance yet, I'd give them the 'bill' for the whole thing spelled out (security deposit less damages less rent owed).  

I am working on securing owner occupied (VA in this case) financing with a low rate, 0% down, and a 30-year term.

A consultant that is separate from your securities attorney can help you navigate this, but a competent securities attorney can help as well. 

Due to seller's financial needs however, a full cash-out offer was ultimately agreed upon, and a conventional commercial loan with a 10 year term amortized over 25 years with 27% down was secured.

They then claimed we breached contract and didn't close. 

But what am I supposed to do in this situation that I'm in where I feel like I have no security that he has my best interests at heart?

They secure the money they lend to you with the asset.

I secured the HELOC and have been actively hunting for our first deal (my dad and I).

Typically these type of dispensaries have heavy security and I am not aware of there being any issues regarding theft, etc in the several years Colorado has had MJ approved for recreational use.