What should I do about my friend who claimed the sound system I gave him was broken, then I found him selling it on the street, knowing that he is a drug addict and that the device is expensive and contains religious materials?

If the borrower is a drug addict, his situation is more serious than merely infringing upon a financial right. The focus should be on helping him overcome his addiction instead of punishing him for the transgression, as this may contribute to saving him, and you will receive a great reward for that. You can contact specialized addiction centers for help. As for the loaned item, if it is still in his possession, reclaim it. If he has sold it, he is accountable for your right, and you have the choice between reclaiming it from the buyer or taking its price.