React based application and the error was related to the loader and the ability to compile code...
After some digging I used the mocha-webpack flag --webpack-config
and pointed it to my webpack config file and got everything working.
"scripts": {
"test": "./node_modules/mocha-webpack/bin/mocha-webpack --webpack-config ./config/webpack/test.js ./app/javascript/packs/setupTests.js ./app/javascript/packs/test"
}