How is this legal?

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It probably isn't.
Read through this and you can pin a few things on them. I believe it is unlawful to sell any animals without some sort of permit. http://www.animallaw.info/statutes/stuskyodgeorgetown_lexington.htm

"(e) Sale of animals prohibited, except by licensed business: It shall be unlawful to sell, exchange, trade, barter, or display any horses, cattle or other livestock, dogs, cats, sheep, goats, chickens, or other poultry or fowl, except pursuant to a duly licensed pet store, stockyard, or breeding establishment conducting such sales or exchanges at its regular place of business and which business is duly licensed by the City of Georgetown, and that such sales shall be subject to the provisions of the Kentucky Revised Statutes governing the sale of livestock and animals. This subsection shall not apply to individual owners of animals or livestock, who may sell animals on an occasional basis with such sales being conducted on property owned or leased by them. An example of an exempt private sale by an individual is the occasional sale of a litter of puppies."

"Sec. 4-8. Same--Selling chicks or other baby fowl in small numbers.

Any person who shall sell or offer for sale at retail living baby chicks, ducklings or other fowl under two (2) months of age in any quantity less than six (6) shall be subject to a fine of not less than one hundred dollars ($100.00) nor more than five hundred dollars ($500.00) or imprisonment for a term not to exceed twelve (12) months, or both, for each act which shall be a separate offense.

(Ord. No. 10-99, § 1, 1-28-99)"
 
Well, I emailed them to ask if they had a proper permit to sell animals... There are TONS of regulations you must adhere to in order to sell any animals. I also copy and pasted those two KY laws that I found and ended the email telling them to watch out. ;)

Can you imagine being charged $100-$500 and getting a possible 12 month jail sentence for EACH TIME you sell chicks that are younger than 2 months old in a group of less than 6?
 
From the regulations posted, I don't see any wording that prevents a private breeder from sales - they appear to be exempt. The wording for minimum sale age doesn't include rabbits/bunnies - only poultry/fowl.

Private breeder exclusion:

"This subsection shall not apply to individual owners of animals or livestock, who may sell animals on an occasional basis with such sales being conducted on property owned or leased by them. An example of an exempt private sale by an individual is the occasional sale of a litter of puppies."

 

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