Yes, but it's not reasonable to expect these bags to be recycled in the same value level - the bags are dyed, contaminated with additives and other recyclables etc. Plus, if they are recycled into fabrics that prevent the use of virgin plastics of fabrics, it still has reduce eco footprint vs landfill or incineration.

All of which to say is "downcycled" is still better than nothing. Although, in a sense the real nothing - not having a wasted bag in the first place - would be the real solution.