Use the Serial Console
The serial console shows the login prompt of the guest and that prompt accepts only a password, so set one now, while SSH still works. A new VM instance has no account password at all, and once SSH is broken it is too late to add one. Security explains why the account starts out locked.
Set a Password
Connect over SSH and set a password for your own account:
$ cubic ssh demo
alice@demo:~$ sudo passwd alice
The command asks for the new password twice. Nothing else is needed, because the account already has passwordless sudo.
Look Up the User Name
The login prompt wants the guest user name. Use cubic show if you are not
sure which one the VM instance uses:
$ cubic show demo
[...]
User: alice
[...]
Open the Console
$ cubic console demo
Log in with the user name and the password you just set. To leave the console
press Enter, then ~, then .. The VM instance keeps running.