Buyer wants to back out of the deal. There is a new disclosure that was sent to them recently. I don't think it is the disclosure, they just want to get out of the deal. Can they cancel the transaction based on the new disclosure without losing deposit?

Possibly, depending on the nature of the disclosure. If it lays out specific facts not previously revealed, or readily observable, that would have been unacceptable if known prior to writing the contract there might be a case to cancel the contract without penalty. If the disclosure is a very general statement that some condition might possibly exist (I often see this with regard to mold), but has not been verified, then the case would be much weaker.

I would suggest refering the question to an attorney for legal advice.