Hi Steven,
1) What is the voltage across the laser diode in operation?
2) What is its current? You can calculate its current by measuring the voltage across the 10 ohm resistor.
3) What is the dropout voltage of the 7805 regulator? Its output voltage will no longer be regulated when the battery voltage is about 7V.
Since a 9V battery's voltage drops to 6V during its life, I always use an LM2931AZ 5.0 low-dropout regulator in my 9V battery powered circuits. It continues regulating when its supply is only 5.4V and it is in a small transistor case. ;D