It is not disengaging completely or dragging at all.... It seems like it disengages for a split second and when it does, it makes a huge bang under the car which may be due to shocking the driveline. I do have brand new u joints.....
This only happens on the 1-2 shift... 2-3 is fine...

FWIW I did tighten the band in the trans (high gear?) as it was set up a bit loose, I tightened it to 2 1/2 turns out from snug and it seems that maybe it helped a bit but the 1-2 shift is rough.. not a clean bang/chirp upshift but more like a split second roughness during the 1-2 upshift.... TBF