This bug was fixed in the package cloud-initramfs-tools - 0.40ubuntu1

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cloud-initramfs-tools (0.40ubuntu1) bionic; urgency=medium

  * rooturl: adjust squashfs url matching to not require '.'.
    Previously it would match <url>*.squashfs or <url>*.squash
    Now it will match <url>*squashfs or <url>*.squash.
    (LP: #1728048)
  * overlayroot: Comment out the read-only line for /.  This hopes to
    avoid systemd confusion and transient ordering cycle. (LP: #1723183)

 -- Scott Moser <[email protected]>  Fri, 27 Oct 2017 09:44:49 -0400

** Changed in: cloud-initramfs-tools (Ubuntu)
       Status: Confirmed => Fix Released

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https://bugs.launchpad.net/bugs/1728048

Title:
  squashfs url matching is to strict

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