I believe it came down to availability of cameras and labs time. I used to have a magnificent original print of YDD, and could swear it had been shot in color.
It's a bit sad, in an odd way.
While other actors were getting their mugs on the screen in glorious Technicolor, James Cagney had to wait his turn until 1942. He wouldn't make another until What Price Glory a decade later. After that, everything was Eastman.
Warners made only one other...